Americans may be watching their spending amid persistent inflation, nevertheless it’s not deterring lots of them from traveling this summer — especially those with higher incomes. Morgan Stanley and AlphaWise polled about 2,000 U.S. consumers in May and located that 60% of consumers are preparing to take a summer trip. Amongst consumers who earn between $75,000 and $150,000, 75% said they’ve travel plans, and the figure jumps to 78% for consumers making greater than $150,000, the poll found. What’s more, those higher-income consumers are making travel certainly one of their key priorities this summer in comparison to other discretionary purchases, in accordance with the survey. Additionally they plan to dig deeper into their wallets this yr, with 21% of those within the $150,000-plus bracket saying they plan to spend “lots more” in comparison with last yr, and 31% planning to spend “a bit more” on their summer vacation. Subsequently, corporations with exposure to the wealthier consumer should profit, said a team of Morgan Stanley analysts led by Michelle Weaver. “Across the pandemic relative performance for the high end struggled more vs the low end,” she wrote in a May 15 note. “This has modified post-Covid and we imagine travel names exposed to high end consumers will proceed to outperform those exposed to low end consumers.” Top airline picks The airlines are painting a rosy picture for the summer . Delta Air Lines CEO Ed Bastian said on his company’s earnings call last month that demand continues to be strong. “We see a record spring and summer travel season with our 11 highest sales days in our history all occurring this calendar yr,” he said. Morgan Stanley continues to prefer the premium airlines. “Because the pandemic, premium has been certainly one of the fastest growing (and sure most resilient) parts of the industry today, with premium cabin outperforming the essential cabin consistently by ~10 pts,” analyst Ravi Shanker wrote. Premium can also be defensive, with the high-end consumer more isolated from macroeconomic pressures than the low end and more prone to fly, he noted. Delta is Morgan Stanley’s top pick within the space. The airline’s strong push into premium will allow it to outperform the rising tide of overall airline demand, Shanker said. That premium focus may also help boost ancillary revenues, push total revenue per available seat mile/yield higher, and proceed to push revenues to all-time highs, he said. His No. 2 pick is Alaska Air , because of its domestic premiumization story. Its proposed acquisition of Hawaiian gives Alaska Airlines a much larger piece of the premium market, he noted. Shanker also likes American Airlines , which he said “could also be certainly one of the cleanest stories amongst our coverage with rising numbers, clean execution, improving balance sheet and low noise.” Its management has also noted its premium revenue is sort of 20% from last yr and currently makes up 61% of revenue, he said. Playing high-end lodging While investor sentiment has been cautious across the gaming and lodging sector, the high-end trends could be seen within the sector after “peeling back the onion,” said Morgan Stanley analyst Stephen Grambling. Upper scale and luxury revenue per available room are outpacing midscale and economy, he noted. Marriott is essentially the most exposed name inside his coverage to the trend, while Hilton also needs to profit, he said. He has obese rankings on each names. “MAR has been leveraging its scale, geographic diversity, and skew to higher end properties to drive above industry RevPAR and fee growth,” Grambling wrote. “The survey only bolsters this view and our expectation for future beats to support the stock.” MAR YTD mountain Marriott yr thus far With Hilton, he highlighted the corporate’s stable revenue per available room and continued buybacks, amongst others, which support his forecast that earnings per share should run within the high teens to twenty%. He also likes Wyndham , even though it has a lower-end skew versus other lodging corporations, he said. “Wyndham’s average household still makes $95k and the corporate is rather more skewed to leisure travel (71% vs. MAR/HLT < 50%)," Grambling said. "As such, a re-acceleration in trends might be enough to drive a multiple re-rating." A mixed picture for cruises The survey results were also generally positive for the cruise industry, which got here roaring back last yr after being decimated during Covid. Nonetheless, the industry has a really long booking window and analysts Jamie Rollo and Stephen Grambling don't think cruise lines are prone to see revenue beats this summer. "RCL and NCLH skew to higher income brackets in comparison with CCL, so we predict the readacross for the upper income consumer favors RCL/NCLH over CCL," they said. This yr, cruise stocks have seen mixed results. Royal Caribbean is up about 14% yr thus far, while Carnival is down nearly 19% and Norwegian Cruise Line has lost greater than 20% thus far this yr. Rollo and Grambling have an equal-weight rating on Royal Caribbean and underweight rankings on each Carnival and Norwegian. — CNBC's Leslie Josephs contributed reporting.
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