By Teresa Rivas

In mid August, most people are thinking about vacation. That's good news for travel and leisure companies.

It has been a roller coaster year for many Americans in terms of their finances. People have been worrying about the impact of tariffs on prices and the economy while watching their 401ks zigzag, so it is little wonder that travel companies have been cautious about consumers' willingness to spend. Yet Gordon Haskett analyst Robert Mollins says that trends are picking up--a good sign for the sector.

"Consumer sentiment improved throughout the second quarter and into July, which some management teams attributed to reduced uncertainty surrounding tariffs and taxes," he noted in an overview of the group. "Almost every management team we heard from had an upbeat tone regarding July."

Not surprisingly, Mollins finds that wealthier people are prioritizing travel more. Booking Holdings and Expedia, two online travel agents, or OTAs, have both noted that higher-income customers are splashing out on things like 5-star hotels and international travel. Hotel chains have said that their luxury properties are seeing greater spending, in contrast to budget options.

"Almost every airline in our analysis has seen strong demand for premium seating," he wrote.

The U.S. is a laggard in this regard. It underperformed across the board for OTAs and nearly all the hotels Mollins looked at. Marriott management noted it expects to see that weakness relative to markets abroad persist through the end of the year.

Still, the outlook for the industry is robust, he said. Although people have tended to make bookings closer to their departure dates as a result of this year's economic uncertainty, that is changing. Lead times are getting longer, making profits more predictable.

Overall, greater certainty about government policy should help as well. The S&P 500 and Nasdaq Composite are near record highs, the tax and spending bill has been signed into law, and some trade agreements have been signed. All of those factors should help people feel more confident about spending on travel.

Mollins highlighted that companies across the industry are optimistic. OTAs have noted that Americans' more cautious spending has been offset by strength from European travelers. "Hotel management teams acknowledged U.S. consumers faced headwinds recently, but had optimistic outlooks over the longer term," he wrote, citing management commentary from Hilton, Marriott and IHG.

Airlines, which had been buffeted by uncertainty-- Delta Air Lines pulled its guidance and United Airlines offered dual financial forecasts after tariffs were announced--say customers are more upbeat.

"American Airlines' management team noted that they have seen signs of reduced consumer uncertainty following the passage of the tax bill and recent tariff deals," Mollins wrote. "Alaska Airlines' team noted that consumer sentiment is gradually improving and expects to see a more stable consumer backdrop over coming months."

Cruise lines, too, have been upbeat. Mollins noted that Royal Caribbean's management team called out "positive sentiment from their customers, which has been bolstered by 'strong labor markets, high wages, surplus savings, and elevated wealth level.'"

Although so-called revenge travel was popular after Covid-19 restrictions forced people to stay at home, that has given way to a new reality. People worldwide are consistently dedicating more of their budgets to leisure experiences than they were before the pandemic. A recent Barron's interview with Melius Research analyst Conor Cunningham about the travel industry pointed to the long-term growth potential for companies that tap into that rising demand.

As long as the economy continues to at least muddle through, that pattern will likely hold. Given the turmoil of 2025, who wouldn't be willing to pay up for a getaway?

Write to Teresa Rivas at teresa.rivas@barrons.com

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August 16, 2025 02:30 ET (06:30 GMT)

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