Key Questions: “Revenge Summer” Is Here. Who Are the Beneficiaries, and Will Americans Go into Debt?

Michael S. Sroda, Senior Lead Analyst, Equity & Fixed Income Research, June 2021

Key Questions: “Revenge Summer” Is Here. Who Are the Beneficiaries, and Will Americans Go into Debt?

As COVID-19 cases grew last year, few imagined long-term restrictions. Data implies consumers are ready to travel again in 2021 and should have the savings for a “planned” vacation. Still, Americans could spend more as restrictions continue to ease.

When the COVID-19 pandemic began to accelerate in March 2020, few imagined that the restrictions would persist for as long as they did. Unfortunately, most of the measures ended up lasting well over a year. As a result, many canceled their entertainment and travel plans in the summer of 2020, much to the dismay of businesses and consumers.

Positively, as we enter the summer of 2021 with a significant number of Americans vaccinated, several restrictions have been lifted, and many consumers are eager to “reclaim” entertainment and travel plans that were lost last summer. Accordingly, due to the potential surge in entertainment and travel spending, some have described this upcoming summer as the “Revenge Summer.” The following article examines where “Revenge Summer” could have the most significant impact and how Americans fund the fun.

Pent-up demand in travel should not come as a surprise given that consumers are exiting a year when many were primarily tied to their hometowns for an extended period. It’s this demand that could spur a substantial amount of travel spending this summer.

Recent surveys on upcoming travel expectations generally support increased travel this summer: Over 50% of Americans plan to take at least one trip in the summer of 2021, with 40% planning on flying to the destination (of those flying, 27% expect to fly internationally). This compares favorably with the summer of 2020 when 72% of respondents didn’t travel at all and only 13% traveled by plane.

As for destinations, beaches and cities were the leaders. More than 60% of respondents who plan on traveling choosing these sites as their destination. Conversely, surveys found that demand for cruise lines remains weak, with 47% of respondents preferring to avoid this type of vacation. Within lodging, hotels are the most popular choice, with 85% of respondents (those planning on utilizing lodging) intending to stay in a hotel, whereas only 23% plan to use private rentals.

The primary differentiator appears to be a higher level of trust in the safety measures taken by hotels, as safety remains an utmost concern for travelers following the pandemic. In sum, survey data suggests that establishments connected to airlines, beaches, cities, and hotels are well-positioned to benefit from a rebound from a very weak 2020.

While survey data supports consumers traveling with greater frequency this summer, the next question is this: How will consumers fund this travel? American consumers appear to be entering the summer season in a relatively strong financial position. The pandemic restrictions of 2020 led to a record high in savings rates since the restrictions fostered an environment of limited spending.

In addition, the aid generated from stimulus payments bolstered the higher savings rate. This may be evidenced by data from the St. Louis Federal Reserve, which, as of April 2021, showed a personal savings rate of 14.9% versus a pre-pandemic level of 8.3% in February 2020.

This statistic could lead some to conclude that increased travel demand will be funded solely from personal savings. However, recent surveys regarding personal savings tell a slightly different story. These surveys have found that, despite the stimulus aid and limited spending in the recent past, the median savings account balance is still only roughly $3,500. Given that the average American’s monthly expenses are more than $5,000, this savings account balance does not appear all that impressive.

In contrast to savings, surveys have gauged how much American consumers plan to spend this summer. These surveys reveal that consumers plan to spend roughly $2,500 on a summer vacation. Furthermore, the surveys also found that 27% plan to incur debt to fund vacations, with an additional 20% viewing debt as a possibility.

While the savings data referenced above implies that consumers should have sufficient savings for the “planned” summer vacation, the survey data suggests that Americans could spend more than what they have set aside. One possible reason is that while consumers have a “planned” budget for vacation following a year when they had to stay at home, there could be an upside to the amount spent on travel once the consumer reaches the destination.

While additional debt may not be ideal for consumers, one beneficiary of the increased debt spend could be credit card companies. Loan growth struggled during the pandemic as consumers utilized the additional savings to pay down balances while they reduced spending. Suppose savings declined at an accelerated pace and debt spending increased due to higher-than-anticipated travel spend. In that case, payment rates should normalize earlier (i.e., monthly payments decrease), leading to higher balances on which to charge interest and a greater potential for additional debt spend in the future. Therefore, personal savings may be depleted, with as many as 47% of consumers prepared to incur debt to fund a summer vacation. Consumers could incur larger amounts of debt to fund travel spending, creating a situation that could benefit credit card companies.

It is critical to consider how developing events, such as “Revenge Summer,” can impact the market's direction. Contemplating how such events factor in evaluating investment options is a foundational element to broader portfolio strategy. As the first “Revenge Summer” begins, we want to wish everyone a safe and enjoyable summer and encourage you to relish in the summer vacation you “lost” in 2020!

For more information, please contact your Key Private Bank Advisor.

Publish Date: June 21, 2021.

Any opinions, projections, or recommendations contained herein are subject to change without notice and are not intended as individual investment advice.

This material is presented for informational purposes only and should not be construed as individual tax or financial advice.

KeyBank does not provide legal advice.

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