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Why Travel Stocks Jumped This Week

What happened

Travel stocks, including TripAdvisor (NASDAQ: TRIP), Booking Holdings (NASDAQ: BKNG), and Trip.com Group (NASDAQ: TCOM) gained as much as 11% through market close on Thursday this week before settling to between 5% and 7% returns, according to data provided by S&P Global Market Intelligence. The broader market was roughly flat over this time while other travel-related sectors like airlines jumped.

The rally was powered by optimism about an approaching end to the current surge in COVID-19 outbreaks and a resumption of the travel industry's early summer recovery.

Image source: Getty Images.

So what

Travel stocks got a shot in the arm following news that the Food and Drug Administration has granted official approval of the Pfizer vaccine, which paves the way for rising vaccination rates. That marked an important shift as the vaccines had until then been operating under emergency authorization rather than full authorization. In addition, daily COVID-19 case rates suggested a peak that might portend an end to the current wave that is sweeping through most of the U.S.

In any case, the average pace of vaccinations has jumped in recent weeks, up to nearly 900,000 per day in the U.S. by Thursday, according to the Centers for Disease Control and Prevention. Two weeks ago, that rate stood at 700,000 per day.

The travel industry's prospects depend on the pandemic getting under control so that consumers can feel free to take those trips they had delayed for much of the past 18 months.

A key factor supporting that rebound is vaccination levels. TripAdvisor said in early August that it was looking for further improving growth trends in the industry, "as vaccination rates increase, countries reopen, and leisure travel's recovery further broadens."

Now what

That recovery has clearly taken a step backward in the three weeks that followed as case rates surged and began to stress hospitals in many metropolitan areas. Some localities have announced new social distancing mandates as well. But slowing COVID-19 outbreaks and accelerating vaccination rates are laying the foundation for a potential quick return to the recovery that these companies were seeing as recently as late July.

Trip.com said in early August that it was encouraged by the sequential improvement it saw for booking trends in both the U.S. and Europe. It will be another 10 weeks or so before Trip.com, TripAdvisor, and Booking Holdings reveals whether the recent case surge has harmed the prospects for continued travel growth in the second half of 2021.

This past week's news gave optimists a few hopeful signs, including the rising percentage of vaccinated people in key markets. But these travel stocks will remain volatile over the short term as Wall Street continuously updates its expectations for the timing and pace of the industry rebound into early 2022.

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Demitri Kalogeropoulos owns shares of TripAdvisor. The Motley Fool owns shares of and recommends Booking Holdings and TripAdvisor. The Motley Fool has a disclosure policy.


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