We may be kicking off Memorial Day weekend, but this summer Americans are trading lavish European beach vacations for lounging in their backyards next to the inflatable kiddy pool.
Amid a period of tariff-induced market anxiety and fears of a broader economic slowdown, travelers are feeling less spendy than ever. When everyone is concerned about their own pocketbooks, discretionary indulgences like vacations are some of the first luxuries people are willing to let go of.
It certainly doesn’t help that many foreign tourists are avoiding traveling to the US, either out of fear of getting caught in an immigration snafu, or due to a more general sense of anti-American fervor. Either way, that poses yet another headwind for the economy in general, and the travel industry in particular.
Airlines were the first to admit they’ve been feeling the pain: Delta, American Airlines, Southwest, and Frontier all pulled their forward-looking financial guidance given the economic uncertainty caused by tariffs, while United offered two different forecasts, calling the situation “impossible to predict.”
American Airlines CEO Robert Isom summed up the predicament bluntly. “Aircraft cost too much already and I don’t want to pay more,” he explained during the company’s last earnings call.
Air travel is already a thin-margin, highly competitive business to begin with. Airline stocks enjoyed a strong post-Covid run as revenge spending gripped travelers who had been cooped up in lockdowns for far too long. That pop has long since faded, while business travelers—who often book more expensive first-class fares that bolster airlines’ bottom lines—are cutting back as well.
Throw in a consumer slowdown on top of all that, and it’s no wonder the Dow Jones US Airline Index has plunged 19.25% this year so far.
But analysts are still bullish on airlines long term: Delta and United both have a “buy” rating from the majority of analysts who cover the stocks, according to the Wall Street Journal, while the consensus rating for American Airlines is “overweight.” Frontier and Southwest both have a more lukewarm consensus rating of “hold.”
Investing by land, air, and sea
While their cousins in the sky suffer through turbulence, cruise lines could fare better. After all, even amid a consumer slowdown, cruises are a relatively bargain-friendly option, and cruise companies also benefit from lower fuel prices.
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Though some analysts highlight fears that a weaker dollar means travellers may not feel like spending big bucks on international cruises, there’s no shortage of domestic options. And if cruise lines do start to feel the same consumer squeeze that airlines are gripped by at the moment, stocks won’t feel the pain for a while yet: Cruise booking windows are usually much farther out than airlines—about six months or so—giving cruise companies plenty of time to change course if sales start to sag.
Royal Caribbean Cruises, Carnival Corp., and Norwegian Cruise Line Holdings all have “overweight” consensus ratings from analysts, according to the WSJ.
Another group of stocks that might be better off than airlines are humble rental car companies.
A record number of people are choosing road trips this Memorial Day, thanks to low prices at the pump. 30.4 million Americans will drive this Memorial Day weekend, a 3% jump from last year, while only 3.61 million people plan to fly, a mere 1.7% increase from last year, according to AAA, which also mentioned that gas is almost 50 cents a gallon cheaper than in May 2024, and domestic flights are 2% more expensive this Memorial Day weekend compared to last year.
More holiday driving, plus auto tariffs, minus cheap air travel, equals a huge boon for used and rental car stocks like Hertz and Avis Budget Group.
That being said, analysts aren’t optimistic across the board. The consensus of analysts covering Hertz gave it an “underweight” rating, while Avis got a consensus “overweight” rating.
Regardless, you’ve clearly got plenty of options for your holiday travel and your portfolio.—LB