What happened
Shares of Norwegian Cruise Lines (NCLH 5.39%), Royal Caribbean (RCL 3.55%), and Marriott International (MAR 0.96%) were all up strongly Wednesday, with the travel stocks trading 6.2%, 4.1%, and 7% higher, respectively, as of 2:48 pm ET.
While Marriott didn't report any material news, both Norwegian and Royal Caribbean put out press releases aimed at generating excitement over new cruises. Norwegian even announced its entry into the NFT business.
However, it was likely that other factors were lifting these three stocks. During JPMorgan Chase's first-quarter earnings call, its CEO offered some highly positive commentary regarding consumer travel and entertainment spending. And Delta Airlines (NYSE: DAL) soared past revenue and earnings estimates when it reported on its most recent quarter.
Both disclosures seemed to put to rest the fear that cash-strapped consumers were dialing back travel spending amid high inflation -- at least for now.
So what
In the first quarter, Delta handily beat its revenue and earnings estimates, and management also boosted its guidance for the current quarter. CEO Ed Bastian said that Delta has been able to raise ticket prices enough that its margins will rise in the second quarter, despite higher fuel prices.
Commentary from JPMorgan Chase CEO Jamie Dimon also seemed to put to bed the idea of the struggling consumer.
"Combined credit and debit spend was up 21% year on year, with growth stronger in credit as we see a continued pickup in travel and dining," Dimon said on the conference call. "And as the quarter progressed, we saw a robust re-acceleration of T&E [travel & entertainment] spend, up 64%."
Chief Financial Officer Jeremy Barnum also noted that JPMorgan wasn't seeing any increase in delinquencies on its credit cards either. This suggests that even with the robust spending, consumer finances largely remain as healthy as they have been, despite higher gas and food prices.
Of course, the Federal Reserve is set to repeatedly hike benchmark interest rates this year, and plans to shrink its balance sheet, which will tighten the money supply and could mute these trends. However, it appears that those moves may be warranted, as the state of the American consumer seems generally very strong, despite recent surveys showing downbeat consumer sentiments.
Additionally, Norwegian issued two press releases Wednesday. The first was an announcement that it will be giving two ships from its Oceania cruise line, the Riviera and Marina, full "stem-to-stern re-inspiration" makeovers, completely renovating them for returns to service in late 2022 and late 2023, respectively. The second announced the cruise industry's first non-fungible token (NFT) marketplace, which will feature auctions of "the art and inspiration for NCL's newest vessels, Norwegian Prima and Viva."
Analysts have recently pointed to Norwegian's focus on the affluent cruiser as a competitive advantage in an inflationary environment. These two announcements seem to reinforce Norwegian's premium brand.
Not to be outdone, Royal Caribbean had a glitzy announcement of its own: It's partnering with Gwenyth Paltrow's Goop lifestyle brand for "Goop at Sea," a wellness-focused retreat aboard the Celebrity Beyond luxury ship. The autumn cruise will visit ports of call along the French and Italian Rivieras, so it probably won't be too hard to feel "well" on that voyage.
Image source: Getty Images.
Now what
Wednesday's news pointed to strong pent-up demand for travel and experiences as the world emerges from the omicron variant COVID-19 surge. Consumer strength should continue through the summer, although there are big question marks around these stocks beyond the near term. Norwegian and Royal Caribbean took on lots of debt to get through the pandemic, and interest rates should rise significantly this year and next. These stocks are currently discounting very strong spending on cruises for years to come, so that will need to continue beyond the next couple of quarters for the stocks to work.
That may very well happen, but there are also concerns in some quarters that the Fed will have to move so aggressively to bring inflation back down that it might tip the U.S. economy into recession in 2023. While that may not happen, investors will need to monitor these macroeconomic risks.
Therefore, while these three travel-related stocks may be riding high on a reopening trade and red-hot consumer spending Wednesday, there are reasons to remain cautious.
