High oil prices are not yet dampening demand for air travel

ALong along with labor, fuel is one of the largest input costs facing airlines. In other words, it is virtually guaranteed that when oil prices soar, as they are today, carriers will pass those higher costs on to customers in the form of higher fares.

For now, it seems the higher fares created by soaring oil prices aren’t stopping travelers from flying. This is good news for travel and leisure exchange-traded funds such as the ALPS Global Travel Beneficiaries ETF (NYSEARCA: JRNY).

JRNY, which tracks the S-Network Global Travel Index, is not an airline-specific ETF, but it allocates 28% of its weight to the industrials sector, where listed airlines and airport operators reside.

Even with high oil prices, the arrival of spring break could be positive for JRNY. Americans are scheduling flights at about double the pace of a year ago, flocking to familiar tourist destinations such as Las Vegas, Orlando, Miami and Los Angeles, reports Barron’s.

This is despite the fact that as of March 11, the average domestic round-trip airfare was $304, down from $235 a year ago. Speaking of commodity inflation, airfares are expected to rise 7% per month through June, with the biggest increases occurring this month, according to Barron’s.

Adding to the case of JRNY as an airline game, analysts see North American air travel returning to pre-coronavirus pandemic levels next year.

Another bright spot for the ALPS ETF is its exposure to casino stocks. As noted above, Las Vegas is one of the most visited domestic destinations this year.

“We believe the fundamental Las Vegas and regional casino environment should maintain its recent strength in demand, pricing and profitability,” Jefferies said in a recent note to clients.

JRNY Components Entertainment Caesars (NASDAQ: CZR) and MGM Resorts International (NYSE: MGM) are the largest operators on the Las Vegas Strip, and each has an extensive portfolio of regional casinos. Many of these sites can be driven from large population centers, indicating that these operators may not be as vulnerable to high jet fuel prices as recent stock price declines indicate.

“We think 2022 could play out better than investors expect, where stocks price declines in EBITDA. However, until older demographics start to return, we see investors looking ahead. beyond the resilient monthly GGR. Rather, investors may have to wait until later this spring for multiples to rebound,” Roth Capital analyst Edward Engel said in a recent note on gambling stocks.

Other travel and leisure ETFs include VanEck Vectors Gaming ETF (BJK) and the US Global Jets ETFs (JETS).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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Felix J. Dixon