Strong travel demand creates opportunity for airline stocks
U.S. Global Investors CEO Frank Holmes joined Steve Darling from Proactive to discuss the continued strength of the global travel industry and what the resilient demand environment could mean for airline, hotel and travel-related stocks.
Holmes said the global travel sector continues to show strong momentum, with Air Canada indicating that the fall travel season could rank among its strongest ever. He pointed to a resurgence in corporate travel and a reduction in traditional seasonality as important drivers, suggesting that demand is becoming more consistent throughout the year.
Holmes highlighted Delta Air Lines as a classic “growth at a reasonable price,” or GARP, investment opportunity. He pointed to Berkshire Hathaway’s decision to significantly increase its position in Delta, following its earlier exit during the COVID-19 pandemic. According to Holmes, Berkshire increased its ownership stake by approximately 44% to about 8.7%.
Despite airline ticket prices rising roughly 17% year over year, Holmes said business travel demand has remained resilient, suggesting that higher fares have not yet materially weakened corporate travel activity.From a valuation perspective, Holmes believes airline stocks remain relatively inexpensive compared with the broader market. He noted that airlines are trading at approximately one-third of the price-to-earnings multiples of S&P 500 companies, potentially leaving room for positive earnings surprises and further share-price appreciation.
Holmes also discussed the relationship between oil prices and airline stocks, highlighting a pattern he has observed in the market. When crude oil prices rise above their 50-day moving average, airline shares often come under pressure because of higher fuel costs. Conversely, when oil prices fall back below the 50-day average, airline stocks have historically tended to strengthen and reach new highs.
The strength of the travel recovery is also evident internationally. Holmes said Europe is capturing roughly one-third of global leisure travel spending this summer, creating significant economic benefits for luxury retailers, restaurants and hospitality businesses across Southern Europe.
Meanwhile, CoStar data through early August continues to show another strong year-over-year performance for the U.S. hotel industry, reinforcing Holmes’ view that travel remains a powerful component of the global consumer economy.
Overall, Holmes believes the combination of resilient corporate travel, strong leisure demand, improving year-round travel patterns and relatively low airline valuations could continue to create opportunities for investors across the travel and hospitality sectors.
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