By Callum Keown
It looks set to be a record-breaking Thanksgiving for air travel. Airline stocks have been flying this year but the holiday period could be a boon for the wider travel sector too, including cruise stocks.
The Transportation Security Administration said it expects to screen 18.3 million passengers at U.S. airports between Tuesday and the Monday after Thanksgiving, a 6% jump from 2023. The record of just over three million daily passengers, set on July 7, is also likely to be beaten this holiday season, the TSA added.
It's expected to be so busy that the Biden administration has allowed the Federal Aviation Administration to use special airspace off the East Coast and Gulf of Mexico normally used by the U.S. military. Transportation Department officials have also met with U.S. airlines to make sure they are operating "realistic schedules" over the period.
Strong holiday demand is never a bad thing but it's unlikely to move airline stocks much, unless it's in the wrong direction. If there's a meltdown like the one that hit Southwest Airlines over December 2022 then that stock fell 10% between Dec.23 and Jan.2. The airline canceled close to 17,000 flights over the holiday period.
While a bad holiday period could hurt the stocks, a good one may not provide much cheer. That's because airline stocks have been flying high this year, with Donald Trump's election win giving them a further boost in recent weeks. Trump is expected to ease regulation on the sector and his pro-business policies and tax cut plans could help lift corporate and leisure travel demand.
United Airlines has surged 129% in 2024 -- the sixth best performer in the S&P 500 -- while Delta Air Lines is up 57%. The U.S. Global JETS exchange-traded fund, which tracks the performance of airlines, is up 26% this year, outperforming the S&P 500's 25% rise.
Expectations are already high. United expects to fly around 25 million passengers over the 2024 holiday period, up 6% from 2023. Delta is projecting record December quarter revenue amid strong holiday bookings. The carrier reaffirmed that guidance last week, implying that a last-minute further demand jolt may be unlikely.
Airline stocks can still move higher, it's just that Thanksgiving demand may not be the catalyst. T.D. Cowen analyst Tom Fitzgerald sees more gains for United coming next year as he called the stock his 'best idea for 2025,' rating the shares Buy.
"Upside exists from domestic share gains, increasing corporate traffic and maturing international routes," he said, hiking his price target to $125 from $100 earlier this week.
It's not just the skies that will be busy this holiday period. Thanksgiving cruises appear to be as popular as they've ever been.
"The demand for cruises has been red-hot post-pandemic. Domestic and international cruise bookings are up 20% compared to last Thanksgiving," the travel association AAA said in its holiday forecast.
Unfortunately the demand for cruise stocks has also been red-hot, meaning that much of the good news around bookings and demand has been priced in. Royal Caribbean is the eighth-best performer in the S&P 500 over the past year, climbing 127%. Norwegian Cruise Line Holdings is up 87% and Carnival has risen 79% over the same period.
However, there is one name that has lagged behind the big three and might be better value for investors. Luxury cruise operator Viking Holdings, which went public in May, is up 35% over the past three months. Its larger rivals Carnival and Norwegian are up around 65%, and Royal Caribbean has risen 50% over the same period.
Viking, known for its high-end European cruises that are popular with wealthy Americans, trades at 20 times future earnings. That's still more pricey than the industry average of 16 times, but the gap has closed in recent months.
Morgan Stanley analyst Stephen Grambling upgraded the stock to Overweight, with a $49 price target earlier this month. He cited the valuation convergence, and noted that Viking has faster unit growth and a younger fleet than its larger peers.
Write to Callum Keown at callum.keown@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
November 24, 2024 02:00 ET (07:00 GMT)
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