Almost three years ago, the world went through an economic shutdown of unforeseen proportions. The emergence of the Covid-19 pandemic and subsequent economic shutdowns wreaked havoc on the travel & leisure sector. 

The inability to travel and restrictions between countries decimated companies in the sector such as airlines, hotels, and cruise companies, with many of these companies generating zero revenue in the depths of the pandemic. 

Travel & leisure companies have historically proven to be highly resilient in many cases though, having weathered severe shocks such as 9/11 and the 2008 Global Financial Crisis.  

Fast-forward to today, where the restrictions between countries have largely lifted leading to the potential for pent-up demand for travel to spark the sector.

Covid-19 and its Global Fade

New covid-19 cases globally have fallen from a peak of approximately 3.7 million cases per day in early 2022 to below 1.0 million cases per day since the end of Summer (as per Google data). In response, many countries have lifted the stringent travel restrictions put in place to limit the spread of the virus, thus renewing travel demand for many consumers who were unable to travel during the pandemic.

While Covid-19 has not completely dissipated—with significant lockdowns still taking root in China - the initial deep concern surrounding the virus has eroded, replaced by a better understanding of the virus and how it is transmitted. In turn, governments are better equipped to make policy decisions, including opening up borders for international travel. Indeed, the number of countries lessening restrictions has increased rapidly since the beginning of the year in tandem with the fade of the Omicron variant.

Investment Thesis for Travel & Leisure

Given the reopening of international borders across the world, many investors expect the pent-up demand of people not being able to travel for the past three years to lift the cash flow generative potential of companies that operate in the travel & leisure sector.

Even with recession fears and inflationary pressures across developed economies, consumers are likely still willing to spend on travel & leisure, especially in higher-income cohorts of the population.

Furthermore, operators in the travel & leisure space have had to lean down their cost structures significantly in order to survive the Covid-19 pandemic. Again, this was a period where many of these companies generated essentially zero revenue.

Companies in the travel & leisure sector have had to be innovative. For example, smaller hotel chains formed revenue-sharing partnerships with larger hotel chains in order to reap economies of scale and build up diversified revenue streams. And this creativity continues, with the ‘new normal’ landscape opening up a range of opportunities.

For investors keen to get exposure to the Travel and Leisure sector, investing via an Exchange Traded Fund (ETF) might be a sensible option. Rather than invest in individual companies, a diversified ETF is a simple and relatively low-cost way to access the growth potential of the sector while helping to reduce portfolio risk.   

ETFs for Canadians to Gain Exposure to the Travel & Leisure Sector

NEO’s screener is a useful tool in helping identify and compare available funds. Alternatively, the following ETFs offer Canadian investors access to the travel & leisure space include:

TRVL – Harvest Travel & Leisure Index ETF - CAD

• AUM: $140.7M
• 1mo Performance: +12.1%
• Expense Ratio: 0.45%

TRVL.U – Harvest Travel & Leisure Index ETF - USD

• AUM: US$7.7M
• 1mo Performance: +13.7%
• Expense Ratio: 0.45%

Data for this article is as of November 1, 2022.

Disclaimer: This article is limited to the dissemination of general information pertaining to investment strategies and financial planning and does not constitute an offer to issue or sell, or a solicitation of an offer to subscribe, buy, or acquire an interest in, any securities, financial instruments or other services, nor does it constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment.