Pandemic savings are dwindling. What does this mean for travel and tourism?

During the pandemic, Americans amassed as much as $2.3 trillion in savings. Now, only a few years later, inflation and other economic pressures have significantly depleted that cushion. But that may not be as bad for the travel and tourism industries as it sounds.

There are almost no silver linings that can be attributed to the pandemic. But, between reduced travel, dining out, and in-person experiences, it did give consumers an opportunity to build their personal savings.

And save they did. At its peak in Q3 2021, Americans’ excess savings reached roughly $2.3 billion.

Once the lockdown was lifted, many sectors of the US economy were optimistic that this would translate to substantial recovery–which was largely true for travel and tourism. In 2022, travel accounted for $1.2 trillion in direct spending, marking a return to pre-pandemic levels. And, in a survey published in March, 62% of Americans were planning on spending more on travel in 2023 than they did the previous year.

However, the excess savings is already dwindling–with some estimates saying it is now down to $1.2 trillion.

How could this become so depleted in just two years? Well, when things reopened, some consumers did spend in excess to make up for lost time. (Remember when revenge travel was all the rage?) But there are also greater economic forces at play.

Take inflation, for example, which almost quadrupled between 2020–2022. So, even if a consumer’s buying behaviors have not changed, rising prices mean that they are now paying more for the same goods. Additionally, while the labor market is strong, wage growth has not been able to keep up with inflation–though that gap is now narrowing.

Additionally, though the government sent out three rounds of stimulus that provided financial cushions for thousands of Americans in the early days of the pandemic, the last check was sent out in March 2021.

And, to further compound potential financial stress, this month also marks the return of student loan payments–which range between $200-$299 per month, on average, and will likely have a significant impact on how some consumers both save and spend.

For the travel and tourism industry, however, the outlook may not be as bleak as it seems: Historically, the upper 20% of households account for 80% of spending in leisure and hospitality.

Currently, the majority of the remaining excess savings is held by those with higher incomes, according to Bank of America.

In short: not much has changed for the most likely travelers.

This could provide stability, if not relief, on many levels. For example, in 2022, US travel spending supported nearly 15 million American workers and generated $84 billion in state and local tax revenue.

So, as of now, I don’t think there is reason for concern–though I do see an opportunity for creativity and future planning. For example, are there opportunities to work with other industry partners to provide enticing, affordable packages? Or are there more exclusive excursions that you can tailor to high-end tourists to generate more revenue?

And, as always, it is critical to continue working to provide travelers with the kind of high-quality experience that keeps them coming back–no matter the economic outlook.

Danilo Diazgranados is an independent investor in the global food and wine, financial services, real estate, and the hospitality sectors.