As the omicron variant of COVID rages on, it’s still unclear when exactly life will return to normal. Leisure and travel companies have been hit hard by quarantines, travel restrictions and business closures over the past two years. Roxanna Islam, the Associate Director of Research at Alerian and S-Network Global Indexes joined the ETF Think Tank to discuss her company’s new global travel index and the state of the industry.
The S-Network Global Travel Index was conceived as an idea around the time that people were talking about the reopening of trade. As target reopening dates kept getting pushed back, it kept the idea front and center in the markets’ mind. Good ideas based on timely topics are often more successful than those born out of other means.
In terms of when the airline industry might fully normalize, Islam says it may take until the end of 2022 or early 2023. Airline prices are still below where they were in 2019, but a lot of predictions say airfares will get higher before they get any lower. Many airlines, hotels, etc. have the ability to pass pricing pressures on to consumers. That’s good for the businesses, but things might still get worse for consumers.
The travel landscape has been evolving and will continue to do so for a while. One of the big questions surrounds business travel. A lot of in-person conferences and business meetings have gone virtual, and many might not go back. There could be a big gap in mid-week business travel that somehow needs to get filled. Domestic travel will also come back much quicker than international travel. Domestic could come back to 95% of its pre-pandemic levels, but international may only get to 40-50%. International travel may not come back for another year or two.
Islam notes that demographics are also playing a key role in how the travel space recovers. Millennials and younger people have shown more willingness to travel again and perhaps have more flexibility to do so than families. A larger than expected portion of business in AirBnB-style businesses is coming from longer-term bookings of 4 weeks or longer. Many are getting used to the idea of working while traveling on the road for extended periods.
Disruption is going to be a growing theme in the travel space. Companies, such as Uber and AirBnB, are well-known for how they’ve impacted taxis and hotels. Travel websites, such as Expedia, have nearly destroyed the travel agent business. The app-based mobile companies should continue to do well. There’s some growing traction for fixed short haul personal flights that offer an alternative to big airlines. The idea of further monetizing vacation stays could be the next big trend, such as tying in yoga classes, recreational activities, etc. to bookings.
Other key takeaways:
- High oil prices aren’t necessarily a major concern for the airlines since much of that risk gets hedged out and they have an easier time passing high costs on to consumers. Airlines and hotels also have the flexibility to change prices on almost a daily basis.
- Expect partnerships on credit cards and financial institutions to be a potentially growing revenue stream for travel companies. It’s good to have revenue sources that are less tied to the core business and customers tend to be incredibly loyal to a single program. It’s an interesting area that can serve as a growth vehicle.
- There was a boom in RVs during the pandemic, but they probably did better in the pandemic that they will do in the future. The remote work industry could tie in with RV market growth.
- Overall, the big obstacle facing the travel industry is the delayed recovery in business travel. A lot may not come back. People are tired of seeing others on Zoom, so there will be an eventual rebound, but will people need to visit all the business conferences?
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