Summer 2021: Will Travel Demand Return?

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Summer 2021: Will Travel Demand Return?

How strongly can hard-hit industries from the pandemic bounce back? Today we have an update on demand for airlines, hotels and car rental companies using real-time data:

#1) Airlines: We gauge incremental real-time consumer demand and eventual profitability for this group by tracking ticket prices over time. Computer algorithms set these based on demand to maximize load factors and total revenues, so there is typically little human decision-making bias.

Here is a comparison of the cost of a non-stop, round-trip flight from New York to Orlando during popular times to fly over the balance of this year versus our last look at the data 3 weeks ago (using Wednesday to Wednesday timeframes to make the data comparable):

  • Spring break (3/31 – 4/7): $464, up 378 pct from $97 three weeks ago
  • 4th of July week (6/30 – 7/7): $193, up 69 pct from $114 three weeks ago
  • Labor Day week (9/1 – 9/8): $165, up 22 pct from $135 three weeks ago
  • Thanksgiving week (11/24 – 12/1): $395, up 61 pct from $245 three weeks ago
  • Christmas week (12/22 – 12/29): $272, up 17 pct from $232 three weeks ago

Takeaway: Americans are already planning (and, more importantly, buying) vacations through year-end as more people get vaccinated, giving US airlines increasing pricing power throughout 2021.

We also track future travel demand with Google Trends query volumes as people tend to search for flights before booking them. Here is a chart of Google searches for “Jetblue” (blue line), “Southwest Airlines” (red line), “United Airlines” (yellow line), “American Airlines” (green line) and travel booking site “Expedia” (purple line) since January 2019:

  • Searches for “American Airlines”, “Southwest Airlines” and “Expedia” are up 7 pct, 50 pct and 36 pct from their 2020 post-pandemic high last June when the virus outlook briefly improved. They are now back to the lower end of their pre-pandemic bands.
  • Queries for “Jetblue” and “United Airlines” are up 38 pct and 11 pct respectively since their post-pandemic 2020 high last June. However, searches have stagnated for these terms over the last month.

Takeaway: searches for these major airlines and travel booking site Expedia have broken out to 12-month highs within the last month, with interest flattening for United and JetBlue but still generally improving for American, Southwest and Expedia. We expect searches to grow in the coming months as a majority of Americans get vaccinated and either book 1) Summer getaways or 2) plan ahead to visit family/friends or take a vacation over the holidays.

#2) Google Trends query volumes for “Car rental” versus “Uber” over the last 5 years:

  • Searches for “car rental” are currently up 18 pct versus the comparable week in 2019.
  • Queries usually peak for the year in June/July amid Summer vacations, but they’re close to the 5-year high despite it being only the end of March.
  • Searches for “Uber” modestly improved this year but have not completely recovered from lockdowns last year.

Takeaway: we’re in the midst of Spring Break, which likely explains the surge in interest in renting a car. Hertz is even waiving the young renters fee (renters under 25 years old) on rentals picked up through April 13th, according to its site. Nevertheless, it’s impressive that demand for car rentals is currently nearly as strong as it was in July 2019.

Meanwhile, interest in Uber remains far below pre-pandemic levels. Yes, many Americans already have the app downloaded on their phones, but new user adoption is key to the company’s long-term growth.

#3) Hotels: Here is a Google Trends chart of search volumes for “Hyatt” (yellow line), “Marriott” (blue line), “Hilton” (red line) and “Airbnb” (green line) over the last 5 years:

  • Searches for “Hilton”, “Marriott” and “Hyatt” are now off just 10 pct, 12 pct and 19 pct from the first week of March 2020 right before shutdowns. They also exceed the lulls in demand between Thanksgiving and Christmas in 2016 through 2019.
  • Searches for “Airbnb” peaked last early December, but that was likely related to its IPO. Prior to that, it made a 5-year high in June 2020 as Americans started to go out and travel more. Queries are currently 17 pct higher than the week before shutdowns last March.

Takeaway: demand for hotels continues to improve, but interest in Airbnb exceeds them all even though that was not the case pre-pandemic. Airbnb benefits from mostly catering to leisure travel, which snaps back quicker than business travel after recessions.

Bottom line (1): Search interest in major airlines, car rentals and hotels have meaningfully improved this year and future progress should not get derailed like last June given that vaccinations are steadily rolling out. Real-time traffic data from popular US vacation cities also shows Americans are starting to travel more as Nick covered in yesterday’s report.

Bottom line (2): That said, air travel and related segments still face challenges.

  • As we noted last week, Google searches continue to show huge demand for home goods purchases (i.e. outdoor furniture and grills). Americans may take a vacation over the balance of this year, but they’re also spending money on experiences closer to home.
  • People will increasingly deal with the transition of getting back to the office versus work from home, and may not have the ability to travel as much as they’d like. Americans notoriously don’t take as many vacation days as they’re allotted even under normal times.
  • There’s also the lack of international tourism to consider with the slow and troubled rollout of vaccinations in Europe.

In the end, we think the travel, leisure and hospitality industries will continue to recover as demand builds and tourism comes back. Airline pricing power is improving amid limited capacity, but it will take time for volumes to return to pre-pandemic levels and investing in these industries will therefore prove choppy. Even still, the Google Trends charts we highlighted show meaningful pent-up demand for travel which should only accelerate heading into this Summer and extend throughout the holidays. The much discussed “reopening trade” of buying travel/leisure names will look very much like the data we’ve shown you today: ultimately up and to the right, but with interludes of stagnancy until the next wave of activity (bookings or investor confidence) hits.