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Travel Is Roaring Back: How Supply-Chain Disruptions Revitalized This Covid-19-Stricken Sector

Usually when I gaze from my office window here in Southern California, I only see the deep, blue waters of the Pacific Ocean. Just a vast expanse of water that extends to Catalina Island in the distance.

A photo of a large shipping vessel at sea.

Source: Daniel Wright98 / Shutterstock.com

But lately, every time I peer through my window, I spot dozens of container ships at anchor. That’s never been a common sight down here, 30 miles away from the port of Long Beach. But it is now, thanks to an epic logjam at every major U.S. port.

These anchored container ships are a real-time snapshot of the “supply-chain disruption” that is causing headaches for so many U.S. companies… and consumers.

Just last week, my plumber came to my house to repair a damaged gas line. He told me the repair would be no problem once he picked up a specific part. One hour later, the plumber phoned me to say that his suppliers had run out of that item and that because of supply problems, delivery would be “30 weeks out.”

He might as well have said, “infinity weeks out.” I couldn’t simply ignore a gas leak for 30 weeks. Fortunately, my resourceful plumber devised a workaround.

But the national supply-chain problem persists. When I flew over Long Beach a few days ago, I peeked out my window and counted 68 container ships on the water below — fanning out for miles from the port.

Interestingly, this problem has created a welcome opportunity for the U.S. airline industry. Because of the shipping industry’s travails, airline companies are transporting a growing volume of worldwide cargo.

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From the perspective of companies that focus on flying people from place to place, flying cargo amounts to “found money.” These newfound revenues are helping to speed the profit recovery at airline companies that operate worldwide long-haul route networks, like United (NASDAQ:UAL), American (NASDAQ:AAL) and Delta (NYSE:DAL).

Flying boxes around the world can be even more profitable than flying people… and boxes never complain about the box sitting next to them or repeatedly hit the call button to ask for another cocktail.

Most important, boxes can fly from country to country, no matter the pandemic restrictions in place. Perhaps that’s why all the major global airlines have been working to increase their cargo volumes.

As the chart below shows, the combined quarterly cargo transport revenues at five major airlines have nearly doubled over the past 12 months.

A chart showing the combined cargo revenues at five major airlines between 2017 and the present.

Compared with 2019 results, third-quarter cargo revenues at Delta, United and American jumped 38%, 84% and 62%, respectively. Even though these revenues represent less than 10% of the total at all three airlines, they produce healthy profits.

Earlier this week, for example, American credited its cargo business for enabling the company to turn a small gross profit for the quarter.

As Benzinga Newswire reported this week:

“American, like its competitors, is benefiting from remarkably strong demand for air cargo shipments that coincide with extreme ocean shipping delays and low inventories, coupled with a shortage of capacity, that have combined to drive cargo rates to all-time highs in many regions.”

These rising cargo revenues might catch another boost from reviving international travel. Domestic travel has recovered to pre-Covid-19 levels already, but international travel has not yet caught up.

Thanks to recently relaxed Covid-19 restrictions in the U.S. and Europe, trans-Atlantic travel bookings are surging. Trans-Pacific travel is also starting to recover, albeit at a slower pace.

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As United Airlines President Brett J. Hart remarked on an earnings conference call earlier this week:

“We were pleased by the announcement that the U.S. entry restrictions on travelers from Europe, U.K., India and other international locations, the so-called 212(f) restrictions, will be lifted by November 8th, and replaced by a global proof of vaccination requirement for all international visitors entering the U.S.… Since the announcement, we have seen a 35 [percentage] point increase in year-over-two-year system bookings from international point of sale agencies for travel in November and December.”

The recent surge of international flight bookings is great news — both because international flights produce higher profits than domestic flights, and because they provide additional opportunities to transport cargo.

Delta, for example, says it is focusing on “cargo-led” markets as it re-establishes its international routes. The company’s cargo revenues, according to Delta President Glen Hauenstein, “will continue to grow and enhance our future international profitability.”

Aside from cargo operations, Delta, American and United all stated that travel bookings have surged since the U.S. announced relaxed Covid-19 restrictions.

On Wednesday, United Chief Commercial Officer Andrew Nocella stated unequivocally, “In the last two weeks, we’ve seen several of our leading business indicators return to where we were in July or better.”

A few of the leading indicators Nocella cited were:

  • Passenger bookings for November-and-beyond travel are higher than 2019 levels.
  • Demand for transatlantic travel is consistent with 2019.
  • Domestic business demand has rebounded to pre-delta variant levels or better.
  • Business traffic across the Atlantic is now tracking consistently with or slightly better than domestic business traffic.
  • Brazilian demand is rebounding quickly.
  • Award booking levels have exceeded 2019 levels for the first time since the pandemic started.

“We believe these leading indicators are solid evidence of a bright outlook for United,” Nocella concluded.

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Despite these promising data points and optimistic remarks, rising fuel costs offer some cause for caution. The soaring price of jet fuel is creating a new headwind for the industry.

That said, when jet fuel prices last hit their current levels around $2.35 a gallon in 2018, Delta, American and United still managed to produce combined annual profits of more than $7 billion.

High jet fuel prices are certainly no help to the airline industry, but if international travel and cargo volumes continue to increase, an industry-wide profit recovery certainly will follow.

In my Investment Report trading research service, we’ve already taken advantage of some of these opportunities — back when travel stocks were even more depressed than they are today.

But travel isn’t the only sector where we’ve been finding great opportunities in Investment Report — we’ve been zeroing-in on a few, select “megatrends,” and examining them from top to bottom to extract the best and most profitable opportunities.

Already this year, my readers have had the chance to snag 12 triple-digit and six double-digit winners (including partial and full closeouts).

And I’ve set my sights on the next megatrend for this year, next and beyond — I reveal it all in my 2021 Wealth Acceleration Summit.

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Eric Fry

P.S. Earlier this week, Louis Navellier revealed the “secret ingredient” that helped him find HD at 73 cents… NKE at 39 cents… and QCOM at $2.10. And he’ll explain how he’s incorporated this “ingredient” into one of my latest initiatives — Project Mastermind — to find the market’s fastest-moving stocks. Full details here.

On the date of publication, Eric Fry did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends… before they take off. In fact, Eric has recommended 41 different 1,000%+ stock market winners in his career. Plus, he beat 650 of the world’s most famous investors (including Bill Ackman and David Einhorn) in a contest. And today he’s revealing his next potential 1,000% winner for free, right here.

Article printed from InvestorPlace Media, https://investorplace.com/2021/10/travel-is-roaring-back-how-supply-chain-disruptions-revitalized-this-covid-19-stricken-sector/.

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