The stock market has been off to a rough start, with the S&P 500 down by about 15% from its all-time high. The Trump administration’s contentious tariff policies are a key factor that has contributed to the decline, as any developments around tariffs can send shock waves across the market.
However, the downturn could present long-term buying opportunities, and travel stocks may be some of the long-term winners. The uncertainty surrounding some airlines’ decision to withdraw their financial outlooks for 2025 and the revision of flight schedules suggests that these businesses may be preparing for a slowdown in travel demand. However, the temporary setback and pressure on share prices could be an opening for investors.
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Significant long-term trends are at work. The surge in digital nomads, for example, is just one of the factors that could sustain travel stocks. There are at least 40 million digital nomads worldwide, and this lifestyle has increased demand for airlines, hotels, Airbnb Inc. (ticker: ABNB) and Vrbo home rentals, and other segments of the travel industry.
Frank Holmes, the CEO and chief investment officer of U.S. Global Investors at the helm of U.S. Global Jets ETF (JETS), laid out his take on the travel industry’s tailwinds at the JETS ETF 10-Year Anniversary Event on April 21 at the New York Stock Exchange. One of the core components of his bullish narrative is the pricing power the travel industry has obtained due to recent demand trends.
“There are not enough airports and airplanes to keep up with this new world that we’re living in, so the airlines have pricing power,” Holmes said in his presentation. Pricing power isn’t just a product of high demand. The airline industry has gone through many mergers in recent years that have reduced the number of competitors. Fewer competitors, plus an influx of digital nomads, equals the optimal setup for higher profit margins, according to Holmes.
The travel industry is no longer cyclical, Holmes argued. Instead, there is a high season and a very high season.
How Trump’s Tariffs Can Affect the Travel Industry
Tariffs will increase the costs of various products and services that are connected to the travel industry. Producing aircraft will be more expensive, and exacerbated supply chain issues may make it take longer to receive new planes.
Beyond flights, the tension between the U.S. and other countries can also reduce tourism in the country, which can impact hotels and home rentals, especially in locations that are close to the U.S.-Canada border. Tourist Economics currently projects that travel from Canada to the U.S. will drop by 20% this year.
While tariffs may prompt some travelers to shun the U.S., the “experience economy” is still strong. Canadians who don’t travel to the U.S. may fly to Mexico, Europe or Asia instead. “People do not want to go spend a lot of money on money suits. They would rather go and travel to Mexico, Colombia, Spain; they want to experience the world,” Holmes said.
While most of the news around tariffs paints a gloomy picture, the airline industry can actually benefit if oil prices continue to fall. Other costs may go up, but fuel is by far the biggest expense in the airline industry. Most airlines commit 20% to 30% of their operating costs to fuel.
If you’re looking to venture into travel stocks and exchange-traded funds, or ETFs, you may want to keep these picks on your radar:
— Invesco Dynamic Leisure and Entertainment ETF (PEJ)
— U.S. Global Jets ETF (JETS)
— United Airlines Holdings Inc. (UAL)
— Expedia Group Inc. (EXPE)
— Airbnb Inc. (ABNB)
Invesco Dynamic Leisure and Entertainment ETF (PEJ)
The Invesco Dynamic Leisure and Entertainment ETF holds 30 U.S. leisure and entertainment companies and tracks the Dynamic Leisure & Entertainment Intellidex Index. PEJ has a 0.57% expense ratio and has delivered an annualized 14.3% return by net asset value over the past five years.
The fund’s top three holdings are DoorDash Inc. (DASH), Sysco Corp. (SYY) and Royal Caribbean Group (RCL). The latter two positions have outperformed the Nasdaq Composite over the past year.
More than half of PEJ’s total assets are invested in the consumer cyclical sector. Less than 10% of the fund’s positions are large-cap stocks, and small- and mid-cap stocks make up the rest. U.S. growth stocks are a large part of the fund’s success, as they represent almost 40% of PEJ’s total portfolio.
U.S. Global Jets ETF (JETS)
The U.S. Global Jets ETF holds only airline stocks and tracks the performance of the NYSE Global Jets Index. JETS has outperformed its benchmark over the past 12 months, and it has an average annual return of 8% over the past five years. The ETF has a 0.6% expense ratio.
JETS’ top four holdings are United Airlines Holdings Inc. (UAL), Delta Air Lines Inc. (DAL), Southwest Airlines Co. (LUV) and American Airlines Group Inc. (AAL), and they make up more than 40% of the fund’s total assets, at about 10% each.
Holmes explained why this is the case: “Every day, there are approximately 46,000 flights in the U.S. alone. Almost 3 million people a day now are flying. Before COVID, there were about 2 million people a day who flew in America. Sixty-five percent of those people who flew in America flew in four airlines. They were United Airlines, Southwest, Delta and American Airlines.”
The JETS ETF also has international airlines among its 49 equity holdings.
United Airlines Holdings Inc. (UAL)
United Airlines recently delivered its best first-quarter financial performance in five years with record operating revenue over $13 billion, despite the challenging macroeconomic environment. Revenue increased by 5.4% year over year, while net income came in at nearly half a billion. The company has also bought back $451 million in shares year to date.
The company has diversified its revenue streams among premium cabins, basic economy, cargo, loyalty and other revenue sources, and it anticipates resilient second-quarter and full-year 2025 earnings. Despite the solid first quarter and optimistic forecast, UAL stock is down by more than 40% from its all-time high due to market uncertainty. The stock also trades at a price-to-earnings ratio (P/E) of 6, which is lower than most stocks in the S&P 500.
Expedia Group Inc. (EXPE)
Expedia is a travel conglomerate that owns several companies in addition to its namesake booking platform, such as Hotels.com and Vrbo. The corporation has a market cap of roughly $20 billion, paired with an 18 P/E recently. It also pays a 1% dividend yield and has been steadily growing its payout. For instance, the company recently hiked its quarterly dividend from 34 cents per share to 40 cents per share, marking a 17.6% year-over-year increase.
The company delivered 10% year-over-year revenue growth in Q4 2024 while operating income surged by 109%. Expedia Group repurchased $1.6 billion worth of shares in 2024 and boosted its total gross bookings by 13% year over year.
Barring severe disruption from tariff turbulence, continued demand in the travel sector should bode well for Expedia and its investors.
Airbnb Inc. (ABNB)
This major hotel disruptor hasn’t faired well recently, but the dip may present a buying opportunity. Shares are down by 7.4% year to date and have shed 25.3% of their value over the past year as of April 24. However, ABNB’s robust growth lately may make the stock more attractive.
The company delivered 12% year-over-year revenue growth in Q4 2024, while net income came in at $461 million. Airbnb’s profit margins have been rising, reaching 18.6% in the fourth quarter. Trends are in its favor: Some travelers are walking away from traditional hotels in favor of the Airbnb experience.
Airbnb also presents a great opportunity for homeowners who want to make some extra cash. More than 5 million hosts use the platform, and they have more than 8 million active listings worldwide. Airbnb has seen the most growth in Latin America and Asia Pacific, two regions with the highest travel demand.
Millennials and Gen Z heavily contributed to Airbnb’s success, and since these generations are doing most of the traveling, Airbnb may continue to grow. Eventually, that growth should translate into share price gains.
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Best Travel Stocks and ETFs to Buy in Tariff Turbulence originally appeared on usnews.com
