Pent-up demand for travel expected to drive economic recovery, says Capital Group

Pent-up demand for travel expected to drive economic recovery, says Capital Group
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TORONTO – Travel and leisure sectors have been one of the hardest hit by COVID-19, with lockdown measures and various travel bans bearing witness to a 95% decline in air travel in the early months of the crisis. Even with vaccination efforts now in full swing, the industry is slow to see change as travel bans persist.

According to the experts at Capital Group, however, pent-up demand for travel and leisure could be the catalyst that drives the modern ‘Roaring 20’s’.

Key insights from Capital Group include:

  • Ready, willing, and able: Unlike in 2008, the COVID crisis is marked by looser fiscal policy, looser monetary policy, a strong banking system and high personal savings rates which, in combination, could drive a sharp pickup in demand for travel, helping to fuel a powerful economic recovery
  • Loyalty keeps the cruise industry afloat: Despite becoming the epicenter of the COVID crisis in February 2020, people are already booking cruises for 2021 and 2022 at higher prices than in 2019, indicating that cruise stocks may represent an opportunity for long-term investors
  • Air travel to soar back: Fears that people may refrain from air travel once bans lift may be unwarranted, as in China, where the virus is largely under control, domestic air travel has nearly returned to pre-COVID levels
  • Ripple effect: A revival in demand for travel would help drive job growth across a variety of industries which have been devasted by the pandemic, ranging from aircraft and jet engine manufacturers, to hotels, casinos, and restaurants
  • Markets tend to anticipate recovery: Since the introduction of vaccines, shares of companies across many travel-related industries have registered strong gains and it is important to pay heed to these underlying trends early

A review of more than 4,000 U.S. portfolios by Capital Group’s Portfolio & Analytics team found that investors significantly reduced allocations to value equities over the last three years. It may be time to rebalance.

 

 

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