Travel ETF Monthy Report | November

Travel ETF Key Takeaways | November

The four TRYP sub-themes are all expected to rival or exceed their pre-pandemic (2019) performance by the end of 2023 or 2024 at the latest. All sub-themes are projected to continue growing strongly through 2026.

Some 4.35 billion people are expected to travel by air in 2023 or close to the 4.54 billion who flew in 2019. According to the International Air Transport Association (IATA) 41% of travellers polled indicated that they expect to travel more in the next year while 49% said they plan to travel about the same.

Data published by hotel consultancy STR shows 88% of global markets experiencing growth in in revenue per available room (RevPAR) compared to 2019. Despite some headwinds the growth of international inbound tourism the recovery of business travel and group attendance are expected to drive higher occupancy rates in 2024.

The Cruise Lines International Association forecasts that global cruise tourism will reach 106% of 2019 levels in 2023 with 31.5 million passengers sailing. The bookings pace for 2024 sailings is up 25% to 30% compared to 2019.

Online travel bookings have been growing faster than overall bookings since 2019 a trend that is expected to continue.

Many travel providers had not yet published third-quarter 2023 earnings data at the time this monthly report was prepared. However available 2Q23 earnings data and future guidance from selected TRYP holdings support this optimistic forecast. Most companies’ revenues increased in 3Q2023 compared to the previous quarter while also surpassing their performance in the last full quarter before the pandemic (4Q19).

Management is generally optimistic about the travel market’s future growth potential while acknowledging concerns about macroeconomic and geopolitical trends in some cases. Most of the airlines expect significant operating revenue increases in 2H23. Hotel companies’ financial guidance while expressed in terms of a slightly different metric (revenues per available room) is likewise generally positive. Cruise lines are projecting increased bookings and higher yields over the rest of the year.

Travel and tourism stocks have generally outperformed the market this year. For example the Dow Jones US Travel and Tourism Index gained over 13.2% in the first nine months of 2023 with the broader Dow Jones Industrial Average losing about -3.4%.

Sources available upon request.All performance figures are showing net data.Past performance is not indicative of future performance and when you invest in ETFs your capital is at risk.

Macro Outlook

A number of developments alone or in combination have the potential to impact our travel forecast as described below.

Because the travel recovery to date has been largely consumer driven recent declines in consumer confidence are a potential source of concern if they continue. The US Consumer Confidence Index (CCI) CCI reached a two-year high in July 2023 before declining in both August and September. Consumer confidence has also declined the last two month in Europe. We have seen no hard evidence yet that declining confidence is leading consumers to scale back their travel plans but some big retailers have noted a pullback in other big-ticket purchases.

The recent slowdown in inflation rates which had also been helping to stimulate travel spending stalled in August. The overall US Travel Price Index (TPI) for August increased by 0.7% vs the previous month and 2.2% vs. August 2022 after four straight month of price declines. Increased airfares were a major driver of the price increase up 4.9% since July. Hotel rates on the other hand declined -3.6% in August vs. July. Data on European travel prices are limited but the overall inflation rate in the Eurozone was higher than the US in August.

China’s reopening from its COVID-19 lockdown was not expected to have a major impact on the worldwide travel industry before late in the second quarter or early 3Q2023. However the early impacts have been even less than expected due to the softer-than-expected recovery of the Chinese economy limited flight availability to China and geopolitical factors.

The risk of a travel-killing recession while it still exists appears to have receded as the US and other advanced economies have proved unexpectedly resilient. A majority of US economists now estimate the probability of a recession at less than 50% vs. 60% of more 6 months ago. The EU was technically in a recession in 4Q2022-1Q2023 but there are indications that the recession is already over in most markets. A recession if there eventually is one is likely to last less than a year and affect some markets more than others.

The geopolitical risks to the global travel industry from the war in Ukraine appear to have been contained for now but on Oct. 7 a major new risk emerged as a result of Hamas’ attack on Israel and Israel’s retaliatory invasion of Gaza. Many airlines are pausing flights to Israel and flights to other regional airports have been intermittently disrupted. Some cruises to the region have also been cancelled. The US government has issued a global travel advisory for its citizens and other countries are advising against travel to Israel the Occupied Palestinian Territories and Lebanon. To date oil and gas flows from the Middle East have remained largely unaffected but global oil prices have been climbing since Hamas’ attack.

Other potential risks to the travel recovery such as rising consumer debt levels slowing employment/wage growth appear manageable at present.

Travel ETF Performance
As of 31.10.2023

1M3M6MYTD12M2YSI
The Travel UCITS ETF-8.80%-21.96%-6.89%4.34%2.74%-19.14%-27.38%
Solactive Travel Index-8.76%-21.89%-6.60%5.08%3.57%-17.99%-26.17%


Please note that all performance figures are showing net data.
Source: Bloomberg / HANetf. Data as of 31/10/2023

Performance before inception is based on back tested data. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled &lsquoRisk Factors’ for further details of risks associated with an investment in this product. When you invest in ETFs and ETCs your capital is at risk.