A Red-Hot Industry and Two Travel ETFs That Aim to Take Advantage


May 17, 2024
By Ambrose O’Callaghan

The last 15 years have seen a substantial increase in the demand in the travel and leisure industry. There are several factors that have led to this jump. First, the Baby Boomer demographic cohort has started to retire. That has led to a big jump in spending in North America towards travel and leisure. Meanwhile, access to air travel has become easier with more airport connections available as well as cost of air travel becoming much more affordable.

Today, we want to look at how travel trends have evolved in the post pandemic world, growth drivers and burgeoning sub-sectors in this space, and some of the risks in the travel sector. Finally, I want to zero-in on two Harvest ETFs that offer investors access to this exciting space.

How travel trends have evolved in the post-pandemic world

The COVID-19 pandemic brought the travel and leisure industry to a grinding halt for a large part of 2020 and 2021. While the world did reopen for travel, not everything snapped back to normal. Fortunately, there were several positives to glean from the pandemic, of which two are discussed here.

First, the long-term growth drivers in the travel and leisure space were not only intact, these were accelerated by the pandemic. People are more inclined to seek out and spend more towards experiences compared to goods in the aftermath of a generational health crisis. Meanwhile, Generation X and Millennials are now reaching their peak earning years. That means there is multi-generational demand for the travel and leisure industry as each of these three demographic cohorts possess significant spending power.

Secondly, the rise of remote work is another source of demand for the travel and leisure industry. Remote work has seen the rise of so-called “digital nomads” – people who work remotely while traveling the world. These individuals utilize technology to stay connected while they explore new destinations. A 2023 survey from MBO Partners stated that 17.3 million United States workers currently described themselves as digital nomads.

Growth drivers and burgeoning sub-sectors in this space

The travel and leisure industry is diverse with multiple sub-sectors that investors can turn to for growth potential. Airlines, Hotels and Resorts, Casinos & Gaming, Cruiselines, and Travel Booking websites make up much of the sector right now.

Research And Markets recently valued the global market for airlines at US$638 billion in the year 2023. The industry is projected to reach a revised size of US$1.1 trillion by 2030. That would represent a compound annual growth rate (CAGR) of 7.6% over the projected period.

Market researcher Grand View Research valued the global hotels, resorts, and cruise lines market at US$524 Billion in 2021. The same report projected that the market would grow at a CAGR of 17.4% from 2022 through to 2030.

Mordor Intelligence estimated that the Casino Gambling market was worth US$150 Billion in 2024. Meanwhile, the same report projected that this market would grow to US$191 Billion by 2029. That would represent a CAGR of 4.95% over the forecast period.

Grand View Research also valued the global online travel booking service market at US$519 billion in 2021. Its report forecast that this market would deliver a CAGR of 9.0% from 2022 though to 2030. The report expects this market to benefit from the growing influence of social media, increasing disposable income, and other factors.

Across these sub-sectors companies have shifted focus towards the high-end consumer. The high-end consumer is a source of higher profit margins as well as a resilient source of revenue. Airlines and Hotels and Resorts are both focused on attracting a higher share of the consumer wallet. These companies are looking for ways to offer premium and loyalty services to attract high-end customers. Meanwhile, airlines have also seen a shift in focus to international travel and away from domestic travel.

What are the risks for the travel and leisure industry today

Sticky inflation and high interest rates are two risk concerns, however, high-end consumers have been largely shielded from inflationary pressures and higher interest rates. Another risk concern that is gaining attention is rising unemployment.

The Harvest Travel & Leisure Index ETF (TRVL:TSX) provides investors with exposure to the growth trends in the travel industry driven by structural, demographic forces. This ETF offers diversified access to the airlines, cruise lines, hotels, and online booking services that look to be well-positioned for long-term growth. This ETF holds the top 30 dominant, large capitalization Travel & Leisure companies listed in North America. TRVL has delivered annualized growth of 6.05% since inception as at April 30, 2024.

Investors who are hungry for passive income may want to consider the Harvest Travel & Leisure Income ETF (TRVI:TSX). This ETF seeks to capture the long-term growth prospects of travel & leisure while paying high monthly income. It holds a diversified portfolio of travel companies and earns a high-income yield through an active and flexible covered call strategy. This ETF has paid out a monthly cash distribution of $0.1600 per Unit since its inception in April 2023. That represents a current yield of 9.89% as of close on April 30, 2024.


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