A downturn in international travel to the U.S. may last beyond summer, experts warn

International tourism to the U.S. is experiencing a significant and persistent downturn, with experts warning the decline will extend beyond summer and into 2025. Forecasts indicate the U.S. will be the sole major economy among 184 studied where foreign visitor spending is projected to fall in 2025, with international arrivals anticipated to be 8.2% below pre-pandemic levels. This trend is largely attributed to political rhetoric and policies creating a perception of unwelcomeness, leading to sharp drops in visitors from key markets like Canada and Western Europe, posing a substantial challenge for the U.S. travel industry despite some domestic travel resilience.

Analysis

The U.S. travel and tourism sector is contending with a significant and prolonged downturn in international visitor arrivals, a trend experts forecast will extend through 2025. Projections from the World Travel & Tourism Council position the U.S. as the only one of 184 countries studied where foreign visitor spending is expected to fall next year. This is corroborated by Tourism Economics, which, despite a slight revision, still anticipates international arrivals to be 8.2% below pre-pandemic levels in 2025. The decline is primarily attributed to a "sentiment drag" stemming from U.S. political policies and rhetoric on immigration and trade, which has alienated key visitor markets. This is evidenced by a 37% year-over-year drop in Canadians returning by car in July and double-digit decreases in arrivals from markets like Germany and Hong Kong. However, the travel landscape is not uniformly negative. Domestic travel shows resilience, with certain destinations reporting strong seasons, and major U.S. airlines are benefiting from robust premium outbound travel by Americans and a 2% year-over-year increase in bookings for the Labor Day weekend.

Key Decisions for Investors

• Investors should scrutinize portfolios for exposure to the U.S. travel sector, differentiating between assets heavily reliant on international inbound tourism, such as hotels and retail in gateway cities, versus those focused on the more resilient domestic travel market.
• The slump is explicitly tied to political factors, making U.S. administration policy a key variable to monitor; any moderation in rhetoric or policy could be a significant positive catalyst, while continued hard-line stances will likely prolong the downturn.
• For U.S. airline stocks, the outlook is mixed, as headwinds from lower inbound traffic are partially offset by strong premium outbound demand from American travelers and a recovering domestic segment, necessitating an analysis of each carrier's specific revenue composition.
• Consider underweighting companies and REITs with concentrated assets in border towns and major international hubs that lack a strong domestic demand driver, as they face sustained revenue pressure from the sharp decline in visitors from Canada and Europe.