Morgan Stanley’s hottest travel stocks this summer | Wilnesh News
Americans may be watching their spending amid ongoing inflation, but that hasn’t stopped many of them from traveling this summer, especially those with higher incomes. Morgan Stanley and AlphaWise surveyed about 2,000 U.S. consumers in May and found that 60% were preparing for summer travel. The survey found that 75% of consumers with incomes between $75,000 and $150,000 said they have travel plans, while that number jumped to 78% for those with incomes over $150,000. What’s more, the survey shows that these higher-income consumers rank travel as one of their top priorities this summer compared to other discretionary purchases. They also plan to dig deeper into their pockets this year, with 21% of those in the $150,000-plus bracket saying they plan to spend “more” compared to last year, and 31% plan to spend “more” on “Their summer vacation. As a result, companies that gain access to affluent consumers should benefit, said a team of Morgan Stanley analysts led by Michelle Weaver. “The relative performance of the high-end market has struggled more than that of the low-end market during the pandemic,” she wrote in a May 15 note. “This has changed post-COVID-19 and we believe Travel brands targeting high-end consumers will continue to outperform those targeting lower-end consumers. ” Preferred Airlines Airlines are painting a rosy picture for summer. Delta CEO Ed Bastian said during the company’s earnings call last month that demand continues to be strong. “We saw a record spring and summer travel season, with the 11 highest sales days in history all occurring this year,” he said. Morgan Stanley continues to be bullish on premium airlines. “Since the start of the pandemic, premium cabins have been one of the fastest-growing (and probably most resilient) segments of the industry today, with premium cabins consistently outperforming main cabins by about 10 percentage points,” analyst Ravi Shanker wrote. He noted that high-end consumers are also defensive, being less affected by macroeconomic pressures and more likely to fly than lower-end consumers. Delta Air Lines is Morgan Stanley’s top pick in the sector. Shank said the airline’s aggressive push into the premium segment would allow it to outperform the rising trend in overall aviation demand. He said the focus on premium will also help increase ancillary revenue, driving up total revenue per available seat mile/revenue and continue to drive revenue to record highs. His second choice is Alaska Airlines, thanks to its domestic premiumization story. He pointed out that the proposed acquisition of Hawaiian Airlines will bring Alaska Airlines a greater high-end market share. Shank also likes American Airlines, saying it’s “probably one of the cleanest stories we’ve ever covered, with increasing volume, clean execution, an improving balance sheet and very little noise.” He said its management also noted , its premium income increased by nearly 20% over last year and now accounts for 61% of revenue. Playing with high-end lodging Morgan Stanley analyst Stephen Grambling said that while investor sentiment across the gaming and lodging industry has been cautious, after “peeling back the onion,” the industry’s high-end trends can be seen. He noted that upscale and luxury hotels generate more revenue per available room than midscale and budget hotels. Marriott is the most talked about brand in his coverage, he said, and Hilton should benefit as well. He rates both names on the high side. “MAR has been leveraging its size, geographic diversity, and bias toward higher-end properties to drive above-industry RevPAR and expense growth,” Grambling wrote. “This survey only supports that view, and our expectations for supporting that going forward. For Hilton, he highlighted the company’s solid revenue per available room and continued buybacks, which support his forecast that earnings per share should be in the mid-teens. operating between 20%. He said he also likes Wyndham, even though it’s on the lower end compared to other lodging companies. “Wyndham’s average household income remains $95,000, and the company is more skewed toward leisure travel (71% vs. MAR/HLT < 50%)," Grambling said. "So a reacceleration of trends could be enough to drive multiple re-ratings." Cruise Lines Mixed picture for industry The findings were also generally positive for the cruise industry, which made a comeback last year after taking a hit during the coronavirus pandemic. However, the industry has a long booking window, and analysts Jamie Rollo and Stephen Grambling believe cruise lines may not earn more than expected this summer. They said: "Compared with CCL, RCL and NCLH are biased towards higher income brackets, so we believe that high-income consumers' interpretation is more inclined to RCL/NCLH rather than CCL." This year, the performance of cruise stocks is good or bad Mixed. Shares of Royal Caribbean Cruises are up about 14% so far this year, while Carnival Cruise Line's shares are down nearly 19% and Norwegian Cruise Line's shares are down more than 20% so far this year. Rollo and Grambling have equal weight ratings on Royal Caribbean and underweight ratings on Carnival and Norwegian Air. —CNBC's Leslie Josephs contributed reporting.
