Americans may be cutting back on their spending, but one thing they aren’t ready to give up yet is travel. Inflation-weary consumers have been less likely to pull out their wallet for discretionary purchases, several retailers reported this earnings season. That sentiment was echoed in a recent survey by KPMG, which found that consumers expected to spend a smaller percentage of their monthly household budget this summer across discretionary and essential categories compared with winter 2023. Furniture, toys and hobby supplies were expected to experience the largest drop in spending, the survey found. Yet despite all odds, 61% of those surveyed said they plan to travel this summer, up from the 49% who said the same in the summer of 2021. The KPMG Consumer Pulse Survey was fielded April 21 to April 26, with a representative sample of 1,003 consumers across the United States. “A lot of this travel and vacation was taken away from them for a two- to three-year period,” explained Matt Kramer, national sector leader for consumer and retail at KPMG. “They’re reluctant to pull back on those experiences and events that they treasure.” That’s translating into outperformance for some names in the travel sector. “You’ve definitely seen a lot of travel stocks benefiting from consumer spending this year,” said Sylvia Jablonski, CEO and chief investment officer of Defiance ETFs. The firm’s Airline, Hotel and Cruise ETF (CRUZ) is up about 12% so far in 2023, after losing 24% in 2022. For instance, Royal Caribbean is up nearly 58% year to date, after losing 35.72% in 2022. Carnival has gained about 36% so far this year, after losing nearly 60% in 2022. Online travel site Booking Holdings is also outperforming the broader market, up about 29% so far this year, and Marriott added 15% year to date. Meanwhile, United Airlines is up nearly 26%. The savvy traveler As consumer spending pivots from goods to services, fueling the post-pandemic travel recovery, they are also being savvy in the face of rising prices. “They’re just being thoughtful about how they spend and where they actually booked their accommodations,” Kramer said. “I think you’re going to see, just like in groceries where consumers are willing to trade down to lesser brands or private label, they’ll do the same thing with their travel planning.” In fact, price is the top consideration travelers are taking into account when they book a trip, according to a Morning Consult report on the state of travel and hospitality in the first half of 2023. However, they are more apt to hunt for less expensive alternatives than cancel plans altogether. Some 48% of those Morning Consult polled said they searched for cheaper options, up from 46% in July 2022, while 38% canceled plans — less than the 40% who canceled in July 2022. Then there is the impact of remote work, which has helped unlock travel demand. A separate survey conducted by Morning Consult for the American Hotel & Lodging Association found that 86% of business travelers are interested in extending a work trip for leisure purposes, known as “bleisure” travel. Some 4,117 U.S. adults were polled from April 28 to May 3. “Freed from the curse of a two-day weekend, and empowered with tools to work remotely, why not take a longer weekend trip and mix in a little remote time on Zoom?” Bernstein analyst David Vernon wrote in a note to clients earlier this month. Cruises the last to recover After being shuttered for more than a year during Covid and then dealing with a myriad of restrictions that kept passengers away, cruise lines are now on track for perhaps the biggest recovery in travel this year, according to analysts. Price increases have yet to catch up to those of hotel rooms, for example, which means there’s more room for prices to run higher. It can also be a bargain for passengers. Royal Caribbean stands out as a top pick for UBS analyst Robin Farley. She also has a buy rating on Carnival, but the company has more European passengers than Royal Caribbean. The European consumer hasn’t been as strong as their North American counterparts, she noted. RCL 5Y mountain Royal Caribbean 5-year performance In addition, Royal Caribbean has about 64% of its cruises in the Caribbean, which is a very strong market. It also has a private island, CoCoCay, with features like a waterpark, zip lining and hot air balloons that contribute to Royal’s revenue. Farley boosted her price target on the stock earlier this month to $103 per share from $91, suggesting shares could rally 32% from Thursday’s close. Meanwhile, Citi analyst James Hardiman is bullish on Carnival. He upgraded the stock to buy from neutral on Thursday and raised his price target to $14 per share from $10, implying 27% upside from Thursday’s close. CCL 5Y mountain Carnival’s 5-year performance Carnival’s balance sheet is at a turning point, Hardiman said, with the opportunity to become “significantly ‘less ugly’ in the years to come.” The namesake Carnival brand is also seeing strength, which is early evidence CEO Josh Weinstein’s turnaround story is working, he added. ‘Improvement in every region of the world’ Hotels are farther ahead in their recovery from the pandemic. Average hotel occupancy is expected to reach 63.8% in 2023, which is just shy of the 65.9% reached in 2019, according to the AHLA. Prices are still climbing, although not as much as in 2022, when the industry’s average daily rate (ADR) and revenue per available room (RevPar) were the highest for any year on record, according to hotel data company STR. In April 2023, the ADR increased 3.4%, while RevPar climbed 1.9%. Demand appears to be holding up despite those higher rates. Some 56% of adults are more likely to stay in a hotel this summer than they were in 2022, according to the AHLA/Morning Consult survey. Of those polled, 55% expect to take more frequent vacation trips and 52% planned for longer stays. That strength was also seen during this season’s earnings reports. “We saw improvement in every region of the world,” Marriott International CEO Tony Capuano told CNBC after its first-quarter earnings report earlier this month. That sentiment was echoed by Hilton Worldwide CEO Chris Nassetta, who told CNBC following the company’s earnings beat in April that the hotel is seeing strength across all segments — leisure, business and meetings and events. He cited the pent up demand for business travelers and the secular shift to spending on experiences and travel over other discretionary purchases. Inbound international travel, which is only at about half of 2019 levels, should also be ramping back up. Not only is China reopening, but the U.S. Travel Association, which Nassetta chairs, is working with the Biden administration and State Department to reduce the massive wait times for visas. “There is a tremendous amount of upside potential in international travel over the next six to 24 months,” he said. Hilton is the top pick of UBS’ Farley. “Hilton is very asset light. … Most of their business is renting out their brand flags and they showed how resilient they can be in the pandemic,” she said. “It’s kind of a safer place to hide if there’s a recession, because they’re mostly sharing the top line and they’re not capital intensive.” However, Marriott is the favorite play of Defiance ETF’s Jablonski. “Marriott is expanding. So they’ve expanded their occupancy, they’ve expanded their chain of hotels, their timeshare properties, their residential properties,” she said. “Their EPS pretty much doubled last quarter and they’ve had more than double-digit revenue growth as well.” Online travel stocks While Airbnb also reported an earnings beat for the first quarter, its cautious outlook for the current quarter sent the stock lower earlier this month. CEO Brian Chesky told CNBC the caution is due to the affordability pressure it’s experiencing in North America. “With inflation, people are more focused than ever on affordability,” he said in an interview with ” Squawk on the Street .” “We’re really focused on trying to make sure prices are modulated in North America.” For Jablonski, the recent pullback makes the stock attractive. While Airbnb is up about 22% year to date, it’s lost nearly 18% since reporting earnings May 9, as of Thursday’s close. “The stock is very fairly valued. They trade at eight and a half times sales and if you look at that company as compared to other stocks, it’s a screaming buy,” she said. “They have a far lower multiple than the average airline stock, they have very high levels of free cash flow.” The stock has an average rating of overweight and nearly 23% upside to the average analyst price target, according to FactSet. Booking Holdings is also an analyst favorite, with an average rating of overweight and 10% upside to the average price target, per FactSet. Evercore ISI’s Mark Mahaney is among those bullish on the online travel company. Booking reported an earnings and revenue beat for the first quarter in early May, but its adjusted earnings before interest, taxes, depreciation and amortization fell short of estimates, per StreetAccount. Mahaney continues to like Booking for its strategic investments, which should support growth, and the progress the company has made in driving more traffic directly to its site. He also thinks its valuation is intrinsically attractive. “There is clear discretionary consumer spend risk here, but strong valuation support should help, along with a management team and a business model that have been fully tested over the last 20+ years,” he wrote in a May 5 note. European travel ‘off the carts’ Then there are the airlines, which have been experiencing demand, even amid high airfares. While prices are still high, the latest consumer price index for April showed the airline fares index fell 2.6% month over month, after rising in February and March. Airlines are essentially sold out for summer travel, according to TD Cowen analyst Helane Becker. She’s forecasting about 275 million people will travel between Thursday, May 25 and Monday, Sept. 4. The three names well positioned right now are United, Delta Air Lines and Copa Holdings , parent of Panamanian airline Copa Airlines, Becker said. Her best idea for 2023 is United, due its international flights. While 2021 and 2022 were about the recovery of U.S. domestic travel, 2022 and 2023 are about the recovery of European flights and this year and next are about the recovery in Asia, she said. “Travel to Europe this summer is going to be off the charts. Demand is very strong, especially given the strong dollar. Asia should start to pick up,” she said. —CNBC’s Michael Bloom and Ashley Capoot contributed reporting.