Travel And Leisure Companies Should Benefit From Satisfying Pent-Up Demand

The travel and leisure segments of the market may be some of the most value oriented ones as their business has essentially been shutdown due to the COVID-19 virus. As the global economy began to be shuttered in February last year, travel companies like Carnival (CCL) and Norwegian Cruise Line (NCLH) experienced significant price contractions as seen in the below chart. When comparing their returns since the beginning of 2020, many of the stocks remain down far more than the broader market or S&P 500 Index. One outlier is Expedia that is up 49.5% versus the S&P 500 Index return of 20.4% since the beginning of 2020.

When comparing the company returns for a few travel/leisure firms since March 23, 2020, all have outperformed the S&P 500 Index as seen in the next chart below. Clearly, the market believes the pessimism shown towards these companies was overdone in the February/March selloff last year.

The sustainability of this performance and return rests on a return to a more pre-COVID environment which hinges on the pace of vaccination of the population and/or the dying out of the virus. According to the government, getting to a point where more than 70% of the population is vaccinated should allow a return to normalcy. The below chart shows the timing of various daily vaccination rates vis-à-vis herd immunity thresholds. It is estimated the current vaccination rate in the U.S. is 1.3 million doses per day.

In the U.K. Boris Johnson announced the restart of international travel beginning May 17, 2021. Travel agencies have reported a surge in bookings as a result of this announcement. A return to a more normal international travel environment will most likely face fits and starts due to some countries quickly reinstating lockdowns though. Today New Zealand's Prime Minister placed Auckland on a seven-day lockdown. Actions like this will keep international travelers cautious about making overseas commitments. Nonetheless, a return to a more normal environment seems to be unfolding and this should benefit travel and leisure related companies.