Summer is halfway over, and travel demand remains high. TSA data points to a 2024 summer season that has so far been more active than 2023 and even prepandemic in 2019. TSA passenger volumes show us consumers are still willing to spend on travel. And if they’re spending on airlines, they are likely to spend on hotels, rental cars, theme parks, restaurants, and other entertainment service areas.
There are at least five ETFs that focus on travel, and each takes a different approach to the industry. Here is what investors need to know about these travel ETFs, including headwinds and tailwinds for the overall industry.
1 – The U.S. Global Jets ETF (JETS ) is the oldest and largest travel ETF, with over $1 billion in assets. This ETF is the most straightforward of the group. It focuses on the global airline industry, which includes passenger airlines, airline operators, and manufacturers. JETS currently holds about 74% of its weight in passenger airline stocks. This includes U.S. carriers like Southwest Airlines (LUV) and American Airlines Group (AAL) in addition to international airlines like Air Canada (AC CN) and Qantas Airways (QAN). An interesting aspect to this ETF is that it includes some travel booking stocks that are more tech-oriented than the typical travel company, like Expedia Group (EXPE), Booking Holdings (BKNG), and TripAdvisor (TRIP).
2 – The Amplify Travel Tech ETF (AWAY ) is the second largest travel ETF that focuses on the “travel technology business, which includes bookings, ride sharing, price comparison, and travel advice. This not only emphasizes travel as a trend but also the new and disruptive ways we use it. Travel booking companies mentioned above are in this ETF. It also has holdings like Uber Technologies (UBER) and Airbnb Inc (ABNB).
3 – The Defiance Hotel, Airline, and Cruise Line ETF (CRUZ ) is the closest to a pure-play travel ETF that includes hotels (like Hilton Worldwide (HLT) and Marriott International (MAR)), passenger airlines, and cruise lines (Royal Caribbean Cruises (RCL) and Carnival Corp (CCL)). This ETF does not include booking companies or tech-focused companies. It is more focused on traditional travel.
4 – The ALPS Global Travel Beneficiaries ETF (JRNY ) is close to a pure-play travel ETF but more thematic due to including a broader range of travel beneficiaries. This fund uses a natural language processing algorithm to recognize keywords that indicate a business exposure to travel. Because of this extra AI boost, the ETF holds a few unique companies relative to its peers in the following spaces. This includes luxury retail, entertainment, leisure, and payment processing. Some examples include: American Express Co (AXP), L’Oreal (OR), and Estee Lauder (EL).
5 – The AdvisorShares Hotel ETF (BEDZ) is the only actively managed ETF of the group. The ETF focuses on the hotel industry including hotels, resorts, cruise lines, and booking websites. While this fund is active, it does not have a significantly higher fee than the rest of its peers.
Long-term trends supporting travel ETFs weighed down by operational issues
While performance for travel ETFs has been positive YTD, it has been relatively low across the board. But looking at individual holdings, many have performed well YTD. These companies are taking advantage of tailwinds seen in the industry. These include: 1) the shift in consumer spending from goods to services; 2) return of travel spending in China; and 3) recovery in business travel. Trip.com Group (TCOM) — which is found in JETS, AWAY, JRNY, and BEDZ — is up 32.7% YTD. It has been benefiting from greater travel demand in China (including business travel demand, which has been slower to recover). Cruise companies like Royal Caribbean care found in CRUZ, JRNY, and BEDZ. They are taking advantage of the post-COVID emphasis on experiences by focusing on its offerings of activities and experiences.
Broadly, the largest negative weight on performance seems to be in airline stocks. These stocks have struggled with profitability despite record travel demand. They have faced: 1) a weaker pricing environment; 2) profitability issues from higher labor and other costs; and 3) delayed deliveries of newer, fuel-efficient aircraft from manufacturers like Boeing (BA). For example, American Airlines (AAL) is down 22.6% YTD and recently cut its forecast due to pricing and profitability issues. Other company-specific issues weigh down the industry including Spirit Airlines (SAVE), which is struggling after its merger agreement with JetBlue (JBLU) was blocked, and is down 81.3% YTD.
Airline stocks have been weighing down overall travel performance. But these operational issues are likely short-term and may be resolved in the coming quarters. It is relatively easier to fix company-specific issues instead of creating top-line growth in the form of consumer demand. The travel sector could have the opportunity to capture long-term consumer demand. The travel industry’s shift toward digitalization in the form of app-based bookings supports this. There are current short-term issues. So, investors may be better off investing in the travel industry through an ETF to diversify away single-stock risk.
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VettaFi LLC (“VettaFi”) is the index provider for JRNY, for which it receives an index licensing fee. However, JRNY is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of JRNY.
