How to invest in the reopening travel economy

"The road must eventually lead to the whole world." - Jack Kerouac

The lure of the open road is as strong as ever, with travelers itching to get out of the confinement they experienced during the COVID-19 pandemic. But the delta variant of COVID is still going strong, which makes investing in travel precarious. What's the best way to invest in the reopening of the travel industry?

Will travel unravel?

The world has spent the past year and a half in the throes of the COVID pandemic, which relegated us to our homes for much of that time. The travel industry is one of the hardest-hit sectors in this new reality. Widespread cancellations of flights, hotel reservations, cruise bookings, and other forms of travel have amounted to trillions of dollars lost.

It seemed that travel had been making a comeback as restrictions eased up and vaccinations were rolled out. The travel industry began taking tentative steps forward towards a recovery to pre-pandemic numbers.

Though the delta variant of COVID has dampened travel's rebound, Labor Day weekend saw many people enjoying a final summer trip. Airports reported twice the daily number of passengers over the holiday weekend, though numbers still fell short of pre-pandemic totals.

Recent talk of possible future lockdowns has made people eager to travel while they still can. "Revenge travel" has emerged as a trend in which people seek to make up for trips they had postponed or canceled due to the pandemic. It may not be simple to travel nowadays, but people still seem keen to do so.

En route to recovery

The travel industry is witnessing renewed interest in airlines, cruise lines, and hotel hospitality on a global scale. While many people have canceled travel plans, still more refuse to stay at home. Travelers seem more determined than ever to get together and reconnect with loved ones and colleagues.

Travel took a big hit, but it's an industry that doesn't plan to stay down for very long. Travel's reopening in steady bursts speaks to pent-up demand. Consumers suppressed their wishes to travel for a long time and are now poised to spend money on travel as soon as the option is available to them.

Several airlines and hotel chains are offering attractive deals to urge travelers to get a change of scenery. Hotel chains and domestic airlines have seen an uptick in shares in recent months. This past summer showed an increase in hotel occupancy as well as in airline passenger numbers.

Customers are eagerly booking trips to visit friends and relatives within the US and likely holding off on further trips until overseas travel becomes safer and more feasible. Trusted industry names in air travel like Delta (DAL) and Southwest (LUV) have surged as a result, as have hotel chains such as Marriott (MAR) and Hilton (HLT).

Airlines have also announced plans to hire thousands of new employees this year, which insiders believe speaks volumes about confidence within the industry. No doubt, there continue to be limitations on our leisure activities amid the turbulent COVID era. As we learn more about how to manage daily life during the virus, many feel ready to resume their travel plans, albeit while taking precautions.

The cruise industry took an especially hard hit during the pandemic and had struggled to stay afloat. Travelers remain uneasy about the thought of boarding a ship and vacationing in close quarters with others. However, both first time cruise-goers and loyal customers still find themselves eager to set sail.

Cruise line managers have undertaken added measures to make cruising as COVID-safe as possible. Higher standards of hygiene and cleanliness aim to reassure cruise-goers while technology lets passengers enjoy contact-free interactions during their time on board. Leading cruise lines Royal Caribbean (RCL), Carnival (CCL), and Norwegian (NCLH) have issued clear protocols for COVID, pledging a safe, healthy sailing experience. A cruise ship's environment is closed and highly monitored, making it more conducive to protecting the health of ship-goers.

Investors might look to these sub sectors for exposure to the reopening travel economy, Alternatively a broad spectrum travel ETF might offer the chance to benefit from gains as the industry recuperates.

Destination known

While the travel industry lost trillions of dollars due to COVID-19, customers yearn to start traveling again for both business and pleasure. As people continue to feel safer when traveling, the sector appears to be poised for recovery and those looking to get in on this recovering market with good return potential may view travel stocks as a worthwhile investment.

Flexibility has become a must when making travel plans. COVID taught us that nothing is absolutely certain, and that plans are liable to change at any time. When making a travel booking, it is more vital than ever to pay attention to the fine print. Travelers expect flexible cancellation policies in case of changes in travel restrictions or their own health. Often, this means that travel plans can't be finalized until the last minute. Travel-related merchants must embrace this new spontaneity to stay relevant.

Safe, hygienic travel is a must. Travel today must include clearly stated guidelines about social distancing, mask wearing, hygiene, and limited crowding. More than ever, one must have a plan in place for healthcare insurance when traveling and at one's destination.

Today's travelers tend to seek out trips that are lengthier and more focused on mindfulness, such as an extended road trip or even temporary relocation. Remote work has made this a possibility. It is also important to some tourists to have an authentic destination experience. Genuine adventures in which travelers can live like locals are taking people off the beaten path. Eating, shopping, and living like a local feels like more of a getaway to travelers than a trip that seems artificial or overly curated.

Wilderness, nature, and wide-open spaces are a balm for the soul of the pandemic-weary. Many people seek a connection to the environment at national parks and wildlife-rich destinations to combat the cooped up, technology-riddled tension they felt under lockdown. The ethical, sustainable values that drive many people's day-to-day decisions have also begun factoring into the types of vacations they choose.

"Certainly, travel is more than the seeing of sights; it is a change that goes on, deep and permanent, in the ideas of living." - Mary Ritter Beard

While the travel industry endured some very trying times due to COVID-19, people will still find ways to travel. Significant changes to travel include priorities, styles, and technology. Travel may be evolving, but it is in no way disappearing from our lives.

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Investing involves risk. Principal loss is possible. As an ETF, the fund may trade at a premium or discount to NAV. Shares of any ETF are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. The Fund is not actively managed and would not sell a security due to current or projected under performance unless that security is removed from the Index or is required upon a reconstitution of the Index.

A portfolio concentrated in a single industry or country, may be subject to a higher degree of risk. Specifically, the Index (and as a result, the Fund) is expected to be concentrated in passenger airline, hotel and resort, and cruise industries ("Travel Companies"). Travel Company revenues are heavily influenced by the condition of the U.S. and foreign economies and may be adversely affected by a downturn in economic conditions that can result in decreased demand for leisure and business travel. Travel Companies may be significantly affected by uncertainty in travel, including guest safety, security and privacy, changes in labor relations and insurance costs, issues affecting equipment reliability and longevity, changes in fuel prices, and shortages of experienced personnel.

Beginning in the first quarter of 2020, financial markets in the United States and around the world experienced extreme volatility and severe losses due to the global pandemic caused by COVID‑19, a novel coronavirus. The pandemic has resulted in a wide range of social and economic disruptions, including closed borders and reduced or prohibited domestic or international travel. Some sectors of the economy and individual issuers, including Travel Companies, have experienced particularly large losses. Such disruptions may continue for an extended period of time or reoccur in the future to a similar or greater extent.

The Fund is considered to be non-diversified, so it may invest more of its assets in the securities of a single issuer or a smaller number of issuers. To the extent the Fund is invested in companies of a single country or region, local political and economic conditions and changes in regulatory, tax, or economic policy could significantly affect the market in that country and in surrounding or related countries and have a negative impact on the Fund's performance. Investments in foreign securities involve certain risks including risk of loss due to foreign currency fluctuations or to political or economic instability, and these risks are magnified in emerging markets. Small and mid-cap companies are subject to greater and more unpredictable price changes than securities of large-cap companies.

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