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Will Travel Stocks Take Off For Investors In The New Year And Beyond?

COVID-19 has been no friend to the travel industry — is a vacation boom around the corner or will the pandemic continue to reak havoc?

What looked to be a promising recovery at the start of 2021 didn’t result in the ‘travel boom’ some had forecast. New COVID variants like Omicron haven’t helped the cause either and according to experts, people are still wary about moving about too much, and “77% say their reason is because of the pandemic”. Here are some trends impacting the industry in the coming year.

Inflation

Inflation is on the rise, but what may be unknown to many, is that travel and hospitality are taking the brunt of the hit. In a November 2021 inflation report, the Bureau of Labor Statistics reported that transportation, hotel accommodation, rental cars, and jet fuel were among those experiencing the greatest price inflation, well above the average 6.8% reported across the overall consumer price index.

These additional costs for airlines and the hospitality sector could lead to strangled margins, particularly those operating a low-cost leadership model. For this industry, competitive pricing — outside of luxury options — is of the utmost importance, and we could see larger, more dominant players use this to their advantage to push out smaller businesses.

Domestic Travel

It’s not all murky waters though. Although international travel, and business travel in particular, have taken a hit, many are opting for the local holiday route. Online searches for ‘staycation’ have grown more than 700% in the last five years, so the companies that adapt will be poised to benefit. “72% of Americans didn’t take a summer vacation, but 31% did take a staycation”.

Postponed Life Events

Many have decided to put off celebratory events such as weddings and graduations in the hope that we will return to normality. Others have postponed pre-made travel plans, and with borders finally opening up and visas being approved, we could see an uptick there too. 

Changing Work Environments 

The travel landscape, however, has changed forever. The availability of remote working options has slowly become a norm in our societies and increased control for employees among ‘The Great Resignation’ suggests these working arrangements are here to stay and could, in fact, be a method companies use to attract and retain talent in the future.

People increasingly are demanding optionality for greater work-life balance, disposable income, and relocation options to suit their personal lives. A senior staff member at Deloitte has also noted people are extending their stays when they do go on vacation, “choosing to work as part of their holiday trips”.

With the digital transformation businesses have undergone during the pandemic era, virtual meeting via platforms such as Zoom means that in many cases, it’s more efficient to conduct business online, rather than dedicating capital to expensive trips for business travel. 

The companies that could benefit

On a long-term horizon, it’s likely that air travel, hospitality, and more regular trips will return and even surpass 2019 levels, but considering the pandemic-related obstacles in the way right now, optimism is low in the short term. Those that will make moves to accommodate customers in the wake of new trends will likely take advantage.

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