This is a container clue - one word or set of letters goes inside another word to form the answer.
Look for a word meaning 'jovial' that will contain some letters. The phrase 'on vacation' suggests removing the inner letters from 'nightcap', leaving just the outer letters, which then go inside the jovial word.
Answer: HENPARTY | Take 'nightcap' on vacation (remove inner letters) to get N-P, then put this inside HEARTY (jovial) to get HE(N...P)ARTY = HENPARTY