With inflation continuing, Americans could also be watching their spending, but that's not stopping lots of them from traveling this summer — especially those with higher incomes. Morgan Stanley and AlphaWise surveyed about 2,000 U.S. consumers in May and located that 60% of consumers are planning a summer trip. Of consumers earning between $75,000 and $150,000, 75% said they’ve travel plans, and for consumers earning greater than $150,000, that number rises to 78%, in accordance with the survey. Additionally, for these higher-income consumers, travel is certainly one of their top priorities this summer in comparison with other discretionary spending, in accordance with the survey. They also plan to dig deeper into their pockets this yr: 21% of those within the $150,000-plus category said they plan to spend “a lot more” in comparison with last yr, and 31% plan to spend “a little more” on their summer vacation. Therefore, firms with exposure to wealthier consumers should profit, said a team of Morgan Stanley analysts led by Michelle Weaver. “During the pandemic, the relative performance of the upper segment versus the lower segment struggled more,” she wrote in a May 15 note. “This has changed post-Covid and we believe travel names with exposure to upper-end consumers will continue to outperform those with exposure to lower-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 stays strong. “We're seeing a record spring and summer travel season with our 11 busiest days in our history, all occurring this calendar year,” he said. Morgan Stanley continues to favor the premium airlines. “Since the pandemic, premium has been one of the fastest-growing (and likely most resilient) parts of the industry, with premium cabins consistently outperforming main cabins by ~10 points,” wrote analyst Ravi Shanker. Premium can be defensive since the upscale consumer is more insulated from macroeconomic constraints than the lower-end consumer and is more more likely 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 demand, Shanker said. That premium focus will even help boost ancillary revenue, increase overall revenue per available seat mile/yield and proceed to drive revenue to all-time highs, he said. His No. 2 pick is Alaska Air, because of its domestic premium story. The proposed acquisition of Hawaiian will give Alaska Airlines a much larger share of the premium market, he noted. Shanker also likes American Airlines, which he said “could be one of the cleanest stories in our coverage, with rising numbers, clean execution, improving balance sheet and little noise.” Management has also identified that premium revenue is up nearly 20% yr over yr and currently accounts for 61% of revenue, he said. Betting on upscale lodging While investor sentiment has been cautious across the gaming and lodging sectors, after “peeling the onion” within the sector, trends are emerging within the upscale segment, said Morgan Stanley analyst Stephen Grambling. Revenue per available room within the upscale and luxury segments are outperforming those within the midrange and value segments, he noted. Marriott is the name most affected by this trend in his coverage, while Hilton also needs to profit, he said. He is obese on each names. “MAR has leveraged its size, geographic diversity and preference for higher-end properties to outperform the industry in RevPAR and fee growth,” Grambling wrote. “The survey supports that view and our expectation that future outbids will support the stock.” MAR YTD Mountain Marriott Year to Date At Hilton, he highlighted stable revenue per available room and continued buybacks, amongst other things, which support his forecast that earnings per share must be within the high double-digit to twenty% range. He also likes Wyndham, even though it has a penchant for the lower end in comparison with other lodging firms, he said. “Wyndham's average household still makes $95,000 and the company is much more focused on leisure travel (71% vs. MAR/HLT < 50%)," Grambling said. "So a renewed acceleration in trends could be enough to prompt a multiple re-rating." A Mixed Picture for Cruises The survey results were also positive for the cruise industry basically, which got here back with a bang last yr after being decimated during Covid. However, the industry has a really long booking window and analysts Jamie Rollo and Stephen Grambling don't think the cruise lines are more likely to see revenue increases this summer. "RCL and NCLH skew toward higher income brackets compared to CCL, so we believe the salience for the higher income consumer favors RCL/NCLH over CCL," they said. This yr, cruise stocks have had mixed results. Royal Caribbean is up about 14% year-to-date, while Carnival is down nearly 19% and Norwegian Cruise Line has lost greater than 20% up to now this yr. Rollo and Grambling have an equal-weight rating on Royal Caribbean and an underweight rating on Carnival and Norwegian. -- CNBC's Leslie Josephs contributed reporting.
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