Summertime Travel Boom in the U.S.

As the summer months of July and August roll around, many Americans are taking advantage of the opportunity to travel and make up for lost time during the pandemic. However, the travel industry has faced numerous challenges in recent times.

Airlines Struggle with Chaotic Operations and Financial Concerns

Southwest Airlines, in particular, has been hit hard. Bernstein’s David Vernon recently downgraded the airline, citing its chaotic operations and lackluster earnings. Southwest has been unable to regain its pre-pandemic margins and is struggling with rising labor costs. Unlike legacy carriers, Southwest lacks premium revenue and has a “suboptimal” fleet. Furthermore, its growing capacity is not generating sufficient revenue per passenger.

Challenges for the Hotel Industry

Hotels are also facing their own set of challenges. Higher operating and non-operating costs, increased rates, limited availability of debt, and slowing leisure demand all contribute to the headwinds faced by this sector. Despite these obstacles, certain hotel companies stand out. Hilton Worldwide Holdings, with its new-property pipeline and asset-light franchise strategy, remains a favorable choice for investors. Ryman Hospitality Properties, with its strategic locations in desirable areas like Orlando, FL, and Denver, CO, where there is limited competition, is also an attractive option.

Online Travel Agencies Show Mixed Results

Several online travel agencies reported their results for the past week. Oppenheimer’s Jed Kelly maintained his optimistic outlook on Expedia Group despite a 14% stock dip, while raising his target on Booking Holdings following a strong quarter. However, he maintained a Hold rating on Airbnb due to concerns about its valuation.

In summary, the travel industry is experiencing both successes and setbacks as the summer travel season kicks into high gear. Airlines grapple with operational issues and financial hurdles, while hotels face increased costs and lower demand. Online travel agencies show mixed performance, reflecting the complexities of the current market.

Companies

More than 170 S&P 500 component companies reported earnings. Two sets of facts collided. FactSet data showed 80% of the companies reported earnings surprises, which was a positive outcome. However, different FactSet data suggested that S&P 500 companies will show a 7% decline in year-over-year earnings, marking the largest quarterly decline since the onset of the Covid pandemic in 2020. It’s not such good news. Apple missed its target in hardware sales, while Amazon exceeded expectations in e-commerce.

Deals

According to The Wall Street Journal, Walmart recently acquired hedge fund Tiger Global’s stake in Indian retailer Flipkart for $1.4 billion. Walmart also purchased venture firm Accel’s 1% stake. In 2018, Walmart had already acquired 77% of Flipkart. In other news, trucking company Yellow, facing challenges with merger debt and labor problems, suspended its operations, putting around 30,000 jobs at risk and discussing the possibility of filing for bankruptcy. Furthermore, it was reported by The WSJ that KKR was engaging in talks with Paramount Global to acquire publisher Simon & Schuster for approximately $1.65 billion.

Upcoming Events

Only three companies with market caps exceeding $100 billion in the S&P 500 index will release their results this week as earnings season comes to an end. Eli Lilly and United Parcel Service will report before the market opens on Tuesday, while Walt Disney will announce its results after the closing bell on Wednesday.

Thursday 8/10

The Bureau of Labor Statistics will release the consumer price index (CPI) for July. The consensus estimate suggests that the CPI will rise by 3.3% year over year. Additionally, it is expected that the core CPI, which excludes volatile food and energy prices, will increase by 4.8%. These figures compare to gains of 3.0% and 4.8% respectively, observed in June. It is worth noting that the CPI is currently at its lowest level since March 2021.

Friday 8/11

The University of Michigan will release its Consumer Sentiment Index for August. In July, consumers’ expectations of year-ahead inflation were at 3.4%. Despite the high CPI reading of last summer, inflation expectations remain well anchored, reflecting consumer sentiment.

The Bureau of Labor Statistics will also release the producer price index (PPI) for July. Expectations suggest that the PPI will increase by 0.7% compared to the previous year, which is six-tenths of a percentage point higher than in June. Additionally, the core PPI is expected to rise by 2.5%, following a 2.4% gain in June.