Americans may be cutting back on spending, but the one thing they’re not ready to give up is travel. Consumers tired of inflation are less likely to pull out their wallets for discretionary purchases, several retailers have reported this earnings season. That opinion is echoed in a recent survey by KPMG, which found that consumers are expected to spend a smaller percentage of their monthly household budget in the summer. This is for discretionary and essential categories compared to the winter of 2023. Furniture, toys and hobbyist items are expected to experience the biggest reductions in spending, the survey found. However, despite all the difficulties, 61% of those surveyed said they plan to travel this summer, up from 49% who also said the same in the summer of 2021. KPMG’s use was carried out from April 21 to April 26, with a representative sample of 1,003 consumers across the United States. “A lot of travel and vacations have been taken away from them for a period of two to three years,” explains Matt Kramer, national regional leader for consumption and retail at KPMG. “They are reluctant to withdraw experiences and events that they cherish.” That translates into outstanding performance for some of the big names in the travel sector. “You’ve certainly seen a lot of travel stocks benefiting from consumer spending this year,” said Sylvia Jablonski, CEO and chief investment officer of Defiance ETFs. The company’s Aviation, Hotels and Cruises (CRUZ) ETF is up about 12% year-to-date in 2023, after falling 24% in 2022. Royal Caribbean, for example, is up nearly 58% year-to-date, after falling 35.72% in 2022. Carnival is up about 36% year-to-date, after falling nearly 60% in 2022. Online travel website Booking Holdings is also doing better compared to the broader market, up about 29% year-to-date and Marriott up 15% year-to-date. Meanwhile, United Airlines is up nearly 26%. Savvy Travelers As consumer spending shifts from goods to services, fueling the post-pandemic tourism recovery, they are also becoming savvy in the face of soaring prices. “They’re just thinking hard about how they’re spending and where they’re actually booking,” says Kramer. “I think you’ll find, like in grocery stores where consumers are willing to switch to lower-end brands or private labels, they’ll do the same with their travel plans.” In fact, price is the top consideration travelers consider when booking a trip, according to a Morning Consult report on the state of travel and hotels in the first half of 2023. However, they tend to hunt. things are cheaper alternatives than canceling the plan altogether. About 48% of Morning Consult respondents said they were looking for cheaper options, up from 46% in July 2022, while 38% canceled plans — less compared to 40% canceled in July 2022. Then there is the impact of remote work. helped relieve the need for travel. A separate survey conducted by Morning Consult for the American Hotel & Lodging Association found that 86% of business travelers are interested in extending a business trip for recreational purposes, known as “bleisure” travel. . About 4,117 U.S. adults were polled April 28 to May 3. “Freed from the curse of two weekends and empowered with the tools to work remotely, why not take a longer weekend trip and enjoy some remote time on Zoom?” Bernstein analyst David Vernon wrote in a note to clients earlier this month. According to analysts, after being closed for more than a year during the Covid period and then facing countless restrictions that kept passengers away, cruise lines are now on the verge of a tourism recovery perhaps. biggest this year. For example, price increases have yet to catch up with hotel room rates, which means there is more room for prices to move higher. It can also be a bargain for passengers. Royal Caribbean stands out as a top pick for UBS analyst Robin Farley. She also has a buy rating on Carnival, but the company has more European passengers than Royal Caribbean. She noted that European consumers are not as strong as their North American counterparts. RCL 5Y Climbing Royal Caribbean 5 Years Performance In addition, Royal Caribbean has about 64% of the cruises in the Caribbean, which is a very strong market. It also has a private island, CoCoCay, with features like a water park, zip and hot air balloons contributing to Royal’s revenue. Farley raised his stock price target earlier this month to $103 a share from $91, suggesting the stock could be up 32% from Thursday’s closing price. Meanwhile, Citi analyst James Hardiman is bullish on Carnival. He upgraded the stock to buy from neutral on Thursday and raised his price target to $14 a share from $10, implying a 27% gain from Thursday’s closing price. Hardiman said the five-year performance of the climbing festival CCL 5Y Carnival’s balance sheet is at a turning point, with the opportunity to become “significantly less bad” in the coming years. added that the Festive of the same name brand is also thriving, which is early proof that CEO Josh Weinstein’s turnaround story is working. ‘Improving in every region of the world’ Hotels are further ahead in their post-pandemic recovery.Average hotel occupancy is expected to reach 63.8% in 2023, lower than the 65.9% achieved in 2019. Prices are still rising, according to AHLA, though not by as much as in 2022, when the industry’s average daily rate (ADR) and revenue per available room (RevPar) were the highest in any recorded year. In April 2023, ADR was up 3.4%, while RevPar was up 1.9% Demand appears to be growing despite higher prices, according to hotel data firm STR. According to an AHLA/Morning Consult survey, about 56% of adults are more likely to stay in a hotel this summer than in 2022. Among those polled, 55% want to take trips. vacation more often and 52% plan to stay longer. That strength is also seen in this season’s earnings reports. Marriott International CEO Tony Capuano told CNBC after reporting first-quarter earnings earlier this month: “We’ve seen improvement in every region of the world. Hilton Worldwide CEO Chris Nassetta told CNBC after the company’s earnings passed in April that hospitality is seeing strength across all segments — leisure, business, meetings and events. He cites pent-up demand for business travelers and the secular trend toward spending on experiences and travel instead of other discretionary purchases. Domestic international tourism, which is only about half the level of 2019, will also rebound. Not only has China reopened, but the U.S. Travel Association, chaired by Nassetta, is working with the Biden administration and the State Department to reduce the huge visa wait times. “There is a lot of upside potential in international travel over the next six to 24 months,” he said. The Hilton is UBS’s Farley’s top pick. “Hilton is very light on the property. … Most of their business is brand flag rentals and they’ve shown how resilient they can be during a pandemic,” she said. “It’s a safer place to hide if there’s a recession, because they’re mostly profit sharing and they’re not capital intensive.” Still, Marriott is Jablonski’s favorite game of the Defiance ETF. “Marriott is expanding. So they’ve expanded their occupancy, they’ve expanded their hotel chain, their time-sharing property, their residential property,” she said. “Their EPS nearly doubled last quarter, and they also had more than double-digit revenue growth.” Online travel stocks While Airbnb also reported lower earnings for the first quarter, its cautious outlook for the current quarter sent the stock lower earlier this month. CEO Brian Chesky told CNBC that the caution is due to the affordability pressure it is experiencing in North America. “With inflation, people are more focused than ever on affordability,” he said in an interview with “Squawk on the Street.” “We’re really focused on trying to make sure prices correct in North America.” For Jablonski, the recent drop makes the stock attractive. Although Airbnb is up about 22% year-to-date, it has lost nearly 18% since reporting earnings on May 9, through the end of Thursday. “The stock is very reasonably priced. They trade at 8.5x sales, and if you compare that company to other stocks, it’s a huge buy,” she said. “They have a much lower multiplier than the average airline stock, they have very high free cash flow.” According to FactSet, the stock has an average overweight rating and is nearly 23% above analysts’ average price target. Booking Holdings is also an analyst favorite, with an average rating of overweight and 10% above the average price target, according to FactSet. Evercore ISI’s Mark Mahaney is among the online travel agency optimists. Booking reported superior earnings and revenue for the first quarter in early May, but adjusted earnings before interest, tax, depreciation and amortization fell short of estimates, according to StreetAccount. Mahaney continues to like Booking for its strategic investments, which will support the growth and progress the company has made in driving more direct traffic to its website. He also argues that its valuation is intrinsically attractive. “There is clearly a risk to consumer discretionary spending here, but strong pricing support helps, along with a fully tested management team and business model over the past 20+ years, ” he wrote in a note dated May 5. European travel ‘gets off’ Then there are airlines that are in demand, even if airfares are high. While prices remain high, the latest April consumer price index shows that the airfares index fell 2.6% month-on-month, after rising in February and March. According to TD Cowen analyst Helane Becker, airlines have essentially sold out tickets for summer travel. She forecasts about 275 million people will travel between Thursday, May 25 and Monday, September 4. The three names that are well positioned right now are United, Delta Air Lines and Copa Holdings, the company. parent of Panamanian airline Copa Airlines, Becker said. Her best idea for 2023 is United, due to its international flights. While 2021 and 2022 are about the recovery of US domestic travel, 2022 and 2023 are about the recovery of European flights and this year and next year is about the recovery in Asia, she said. “European travel this summer will be a must,” she said. Demand is very strong, especially due to a strong dollar. Asia will start to appreciate. —CNBC Michael Bloom and Ashley Carot contributed reporting.