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Summer Travel Surge Looks Right On Schedule

30 May 2014 in Trading Ideas

The harsh winter experienced by many this past year may have had a deleterious effect on many parts of the US economy, but it doesn’t seem to have affected the willingness of people to get out of town once the weather no longer held them hostage.

Earlier this month, AAA Travel said it was projecting that 36.1 million Americans would journey 50 miles or more from their home during the Memorial Day weekend – a 1.5% increase from last year.1

And in a nod to the beginning of the so-called summer driving season, 8 out of 10 travelers this past weekend were expected to drive to their destinations.

 

More significantly perhaps, the 2014 forecast is 2.6% higher than the 10-year historical average and is the second-highest travel volume since 2000, AAA said.

Holiday-weekend air travel was expected to increase by 2.4%, while other modes of transportation – cruise, trains and buses – was forecast to have the largest increase (6.5%).

Marshall L. Doney, AAA’s chief operating officer, said that in addition to seasonal rising temperatures, improvements in several key economic factors were driving expectations for more holiday travel. “As the economy continues to improve at a slow and steady pace consumer spending, disposable income, consumer confidence and the employment outlook are trending up, which is welcomed news for the travel industry,” Donley said.

Another key tailwind was undoubtedly AAA’s expectation that most drivers would pay lower gas prices during Memorial Day weekend, compared with a year ago, due to rising gas supplies.

 

Interestingly, the forecast for lower gasoline prices did not extend to AAA’s expectations on other travel costs, including airfares being 6% higher, mid-range hotels costs rising 2% and car rentals up 1%.

But higher airfares are certainly not dissuading customers from flying. According to trade group Airlines for America, around 210 million passengers, nearly 2.28 million a day, are expected to fly on US carriers between June 1 and Aug. 31. That’s 1.5% more than last summer and the highest total since 2008.2

Expectations of an improving economy boosting the fortunes of travel providers have also been echoed in the stocks of those companies. The Taking Flight motif, made up of airline stocks has gained 23.2% in 2014, while On the Road motif, which includes travel stocks has increased 17.4%. During that same time period, the S&P 500 is up 5.1%.

In the past month, the Taking Flight motif has risen 9.5%, while the On the Road motif is up 6.6%. In that same time, S&P 500 has increased 2.4%.

Airlines – and their stocks – may also see some additional benefit from the latest attempt to push fares even higher as customer demand peaks. Late last week, Delta raised base prices by up to $10 per round trip. The increase was matched by all major airlines, including Southwest, which had held out for a couple of days.3

That sort of push by airlines builds yet another piece of evidence that demand for travel isn’t about to wane – even at higher prices.

1AAA press release, Memorial Day Travel Forecast, May 16, 2014, http://newsroom.aaa.com/tag/memorial-day-travel-forecast/, (accessed May 28, 2014).

2Gillian Rich, “US Air Travel Expected To Rise As More Head Abroad,” investors.com, May 15, 2014, http://news.investors.com/051514-700988-us-travelers-take-to-the-skies-more-heading-abroad.htm?ven=yahoocp&src=aurlled&ven=yahoo, (accessed May 28, 2014).

3Associated Press, “Airlines Attempt to Push Airfares Higher,” May 22, 2014, http://www.nbcnews.com/business/travel/airlines-attempt-push-airfares-higher-n112431, (accessed May 28, 2014).

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