Knowing the world versus experiencing it is very different; traveling and tourism bridge the gap between the two. Tourism was one of the first sectors to be deeply impacted by the pandemic, as measures introduced to contain the virus led to a near-complete cessation of tourism activities worldwide. But post-pandemic, the travel and tourism industry has gradually rebounded and is poised for progressive growth in the future.
This article will examine recent growth projections for the travel and tourism industry and an investment solution that provides comprehensive exposure to industry stakeholders.
Travel and tourism, a contributor to the global economy
The World Travel & Tourism Council, the leading advocacy group focused on quantifying the industry’s economic impact at a global level, recently reported that the travel industry’s global economic impact is expected to reach a record-breaking $11.1 trillion in 2024, surpassing its prior high of $10 trillion in 2019. In another decade, tourism is forecasted to become a $16 trillion industry, making it 11.4% of the global gross domestic product.
While the post-pandemic recovery of the travel and tourism industry has been notable, in 2023, the industry was estimated to have a global economic impact of $9.5 trillion, just 5% below 2019 pre-pandemic levels when travel was at its highest.
Against the backdrop of the ongoing Russia-Ukraine war and prolonged travel restrictions imposed by several countries, such as China, the industry was adversely impacted by several geopolitical issues. In the present, the strengthening of the U.S. dollar is a factor that could compel American travel this year, as the dollar will stretch farther. Additionally, the re-opening of the Chinese economy is anticipated to be a boon for the travel and tourism economy.
Stakeholders within the travel and tourism industry
The number of stakeholders within the travel and tourism industry is expansive, but a simple grouping to differentiate the players in the ecosystem is ‘Direct Travel Spend,’ ‘Indirect Travel Spend,’ and ‘Induced Spend.’
Direct Travel Spend refers to all expenses that are most clearly connected to the act of traveling: Think hotels, tours, and transportation, plus public investment in these types of services. Indirect Travel Spend refers to the ancillary businesses that are foundational for hotels and lodging, such as vendors that supply sheets and towels or local ingredients in bulk. Lastly, Induced Spend, which accounts for the trickle-down effects of hospitality employees using their salaries to stimulate their local economies.
Businesses within the ‘Direct Travel Spend’ populate the investable universe, as they offer opportunities for financial investment and have the potential to generate returns. Here are some examples:
- Online Travel Agencies (OTA): Companies that operate online platforms for booking travel services, such as Expedia (NASDAQ:EXPE), Booking (NASDAQ:BKNG).com, and Airbnb (NASDAQ:ABNB), are investable stakeholders. These companies generate revenue through commissions, advertising, and other fees.
- Transportation Companies: Airlines, cruise lines, railways, and car rental companies offer investment opportunities. Investing in publicly traded transportation companies or infrastructure projects related to transportation (such as airports or ports).
- Accommodation Providers: Hotels, resorts, and other lodging establishments are investable stakeholders. Investing in hotel chains, boutique hotels, or real estate investment trusts (REITs) focused on hospitality can provide exposure to the accommodation sector.
Investing in the travel and tourism industry with Harvest Portfolios
For investors interested in comprehensive exposure to the travel and tourism industry, Harvest ETFs has two thematic solutions that provide diversified exposure to various businesses within the ‘Direct Travel Spend’ category of the industry, the Harvest Travel & Leisure Index ETF (Ticker: TRVL/ TRVL.U) and Harvest Travel & Leisure Income ETF (Ticker: TRVI)
How TRVL ETF works
TRVL holds a diversified portfolio of large-cap companies that own or operate travel-related businesses, including airlines, cruise lines, hotels, and booking platforms, offering exposure to various growth opportunities within the sector. As an index ETF, TRVL invests in 30 large-cap travel and leisure companies in North America, including familiar names like Hilton, Marriott (NASDAQ:MAR) International, Airbnb, Carnival (NYSE:CCL), Air Canada (TSX:AC), and Delta Air Lines (NYSE:DAL), among others.
Regarding performance, as of April 2024, TRVL’s year-to-date performance is 4.66%, six-month performance is 24.00%, one-year performance is 19.44%, and a since inception performance of 6.05%.
How TRVI ETF works
TRVI holds the same diversified portfolio of large-cap travel companies but generates a monthly income through a covered call-writing strategy. This involves selling call options on the securities within the funds to generate higher income. This feature may appeal especially to investors who are saving for retirement and are concerned about ongoing economic uncertainty and stock market volatility.
Regarding performance, as of April 2024, TRVI’s year-to-date performance is 0.80%, six-month performance is 20.26%, one-year performance is 12.00%, and a since inception performance of 14.97%.
Bottom Line
The global travel and tourism industry is filled with great growth potential, as a combination of strong economic growth in developing countries, new technologies, such as booking platforms and online vacation rental marketplace, and a growing demographic of individuals interested in traveling has been instrumental to its ongoing expansion. For investors looking to gain broad-based exposure to this industry, TRVL and TRVI are solutions worthy of consideration.
This content was originally published by our partners at the Canadian ETF Marketplace.