Portfolio Manager Jeremiah Buckley and Assistant Portfolio Manager David Chung discuss the strong recovery potential for travel and leisure industries as COVID restrictions ease.

Key Takeaways

  • Travel and leisure industries have been severely hampered by COVID-related social restrictions, perhaps more than any other segment of the economy.
  • However, a confluence of factors is beginning to foster green shoots of activity in these beleaguered sectors.
  • Although it is impossible to forecast the exact timing, we expect select stocks within these industries to benefit as the U.S. economy reopens and pent-up demand is unlocked later this year.

Travel and leisure have perhaps been the two industries most severely impacted by social restrictions brought on by the COVID pandemic. However, there are powerful factors coalescing that point to a strong economic rebound in the U.S. in 2021: the broader rollout of vaccines, significant pent-up demand, strong consumer balance sheets and extensive monetary and fiscal stimulus. These forces are beginning to foster green shoots of activity ‒ particularly in these beleaguered areas ‒ and could lead to a considerable rebound once the economy can fully reopen.

A Solution to the Pandemic Is Driving Optimism

Vaccination rollouts have led to a marked drop in the number of COVID-19 cases and hospitalizations, fueling optimism for a full reopening of the economy. At the time of writing, nearly 100 million vaccine shots had been administered in the U.S. and nearly 20% of the population had received at least one dose.1 Some states have begun to lift social restrictions and mask mandates (e.g., Texas, South Dakota, Montana, Mississippi and Iowa), citing the drop in infections and increased vaccinations. In other states, restrictions are being eased, such as allowing increased capacity for social gatherings in restaurants, theaters, casinos and sports and entertainment venues, foreshadowing a full reopening of the economy. However, significant concerns remain around highly contagious variants of the virus and past instances where the easing of restrictions has led to spikes in cases.

Unlocking Pent-up Demand

As restrictions ease, we are starting to see green shoots of activity in travel ‒ particularly within leisure ‒ and indications of significant pent-up demand that will be released as markets reopen to tourism. Many consumers were forced to skip vacations entirely in 2020 and are now anxious to travel in the very near future: 34% of Americans plan to travel out of town this spring and another 35% plan to do so this summer,2 while 76% are planning destination wish lists for future travel.3

Although still significantly below pre-pandemic levels, total traveler throughput at U.S. airports has increased to the highest levels since the pandemic began, as shown in Figure 1.

Figure 1: Total Traveler Throughput

Source: TSA.gov, as of 14 March 2021.


While leisure travel and bookings within driving distance continue to significantly outpace business and longer-distance travel, there are expectations that business and group demand (trade conferences, for example) will recover in the second half of 2021 and into 2022 as some companies view this travel and these events as essential to their businesses. That said, the majority of hotel reservations are still being made within a week of travel and international trips remain heavily restricted. This lack of visibility limits trend forecasts going forward but does suggest that companies more exposed to regional travel could benefit initially and potentially grow market share during this period.

Healthy Consumer Balance Sheets Can Provide Fuel

Although millions still remain unemployed, in general, the U.S. consumer appears to be in a healthy position to help drive a recovery, bolstered by surplus savings (Figure 2) and asset growth from both the stock market recovery and strong home values. Year-over-year, the personal saving rate in the U.S. has nearly tripled to 20.5% as of January 2021 versus 7.6% as of January 2020. The rise in savings has been driven by a tremendous amount of fiscal stimulus and is likely to go even higher with an additional $1.9 trillion of stimulus recently passed.4

Figure 2: Personal Saving Rate

Source: U.S. Bureau of Economic Analysis, Personal Saving Rate [PSAVERT], retrieved from FRED, Federal Reserve Bank of St. Louis, as of 3 March 2021.

Of course, consumers may decide to spend their savings on goods and services or use them to pay down debt or make investments rather than for travel or leisure pursuits. Ultimately, these decisions will play a significant role in the trajectory of the economic recovery. However, early indications show that consumers’ propensity to save is already beginning to ease.

Growth Drivers in the Short and Long Term

Throughout the pandemic, we have seen investment themes related to widespread digitization galvanized. We think a broad economic recovery can only serve to bolster these long-term trends. These include the shift to e-commerce, increased adoption of digital payments and a transition to the cloud and Software as a Service for remote work, schooling and entertainment. Health care innovation across pharmaceuticals, medical devices, patient personalization and diagnostics capabilities also looks poised to endure.

While we have seen a recent uptick in inflation expectations and interest rates, we believe that the backdrop for equities in general remains positive, helped by ongoing fiscal stimulus and accommodative monetary policy. Combined with an improving health situation, significant pent-up demand and a strong consumer, this backdrop creates growth potential in the leisure and travel industries.

That said, it remains extremely important to be selective when analyzing these industries, as some stocks’ valuations are higher than pre-pandemic levels despite materially worse balance sheets. In some cases, companies have also diluted shareholders by issuing additional equity. Businesses, particularly in the travel and leisure industries, that can benefit from a recovery and have strong balance sheets could be well placed for a rebound as the economy reopens and returns to health.

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1 Centers for Disease Control and Prevention, 10 March 2021.
2 Survey conducted online within the United States by The Harris Poll on behalf of Ad Age during 23-25 February 2021, among 2,032 U.S. adults aged 18 and older.
3 American Express Travel: 2021 Global Travel Trends Report, poll conducted 15-24 January 2021.
4 Wall Street Journal (https://www.wsj.com/articles/house-set-to-approve-covid-19-relief-bill-11615372203), 10 March 2021.


Fiscal policy/stimulus: Government policy relating to setting tax rates and spending levels. It is separate from monetary policy, which is typically set by a central bank. Fiscal expansion (or ‘stimulus’) refers to an increase in government spending and/or a reduction in taxes. Fiscal austerity refers to raising taxes and/or cutting spending in an attempt to reduce government debt.

Monetary policy/stimulus: The policies of a central bank, aimed at influencing the level of inflation and growth in an economy. It includes controlling interest rates and the supply of money. Monetary stimulus refers to a central bank increasing the supply of money and lowering borrowing costs. Monetary tightening refers to central bank activity aimed at curbing inflation and slowing down growth in the economy by raising interest rates and reducing the supply of money.