Anyone booking their summer travel plans these days may be in for a bit of a surprise. Fortunately, there are ways to capitalize on the demand if you know where to look.
The median domestic ticket price in the US at the end of 2022 was $393.85, according to the Bureau of Transportation Statisticsup from $327.13 at the end of 2021. However, higher prices do not appear to be affecting demand for travel, as about 2 passed through Transportation Security Administration checkpoints on April 27, 52 million people, 11% more than a year ago.
In fact, travel may be one of the few discretionary areas where consumers are still willing to pay.
(ticker: V), which posted earnings on Tuesday, said consumer spending on travel and entertainment continued to grow steadily in the first quarter, in contrast to other categories, where spending was flat or low compared with with a year ago.
(MA) delivered a similar message on Thursday.
However, the very high demand and prices have not been all good for airline shares.
(AAL) reported better than expected earnings and raised its second-quarter guidance on Thursday, but its shares gained just 1% and are closer to its 52-week low than its 52-week high.
(DAL) and
(UAL) shares have been range bound.
In short, the demand for air travel is back with a vengeance, but so are the operators’ costs related to fuel, labor and more. The biggest problem could be the complexity of restarting a business that depends on precise timing and execution. All that demand doesn’t mean as much if airlines don’t have the ability to put butts in seats.
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“We are of the view that airline profitability in 2023 will be heavily influenced by airlines’ prudent capacity deployment,” writes Deutsche Bank analyst Michael Linenberg, who favors American, Delta and United, citing their markets. attractions and diversified income streams.
Investors don’t have to buy airline shares to play the rebound in air travel. Sumit Handa of Pennington Partners points to
(FTAI), a $2.8 billion company that leases and maintains aircraft engines, including those found in the Boeing 737 and Airbus A320 families. Federal regulators require regular maintenance and replacement parts for the engines, work that goes to FTAI. Handa expects that FTAI shares, which boast a dividend yield of 4.2%, could double in the coming years as air travel continues to recover and capacity grows.
Another non-air move is
(AL), says Bill Hench, head of the small-cap team at First Eagle Investments. The aptly named company is a big player in the aircraft leasing business, with more than 100 clients worldwide. Its fleet of more than 900 aircraft is significantly younger than most competitors, making it more attractive to airlines.
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Air Lease shares were dragged lower during the March banking turmoil and have yet to recover. It’s attractive at just 7.5 times future earnings and a dividend yield of 2.1%, according to Hench. “Our thesis hasn’t changed: the stress in the financial markets is what gives you the opportunity to buy things like Air Leases at these prices,” he says.
Just don’t expect any bargains on your airline tickets.
write to Nicholas Jasinski in nicholas.jasinski@barrons.com