American tourism faces a 'perfect storm'

U.S. tourism faces a "perfect storm" of challenges in 2025, projected to lose $12.5 billion in revenue, making it the only country analyzed by the WTTC expected to see a decline. International visitor spending is expected to fall 7% from 2024 and 22% below pre-pandemic levels, due to a strong dollar, strict border controls, and perceptions of an unwelcoming environment; domestic travel is up 3% as Americans opt for closer destinations amid economic uncertainty, but major airlines are cutting capacity due to declining consumer sentiment and operational disruptions.

Analysis

The U.S. tourism sector is confronting significant challenges in 2025, uniquely positioned as the sole nation among 184 analyzed by the World Travel & Tourism Council (WTTC) projected to experience a decline in tourism revenue, estimated at a $12.5 billion loss. International visitor spending is forecast to decrease by 7% from 2024 to under $169 billion by year-end, a notable 22% below its 2019 pre-pandemic peak, with a full recovery not anticipated by the WTTC until 2030. This downturn is attributed to a confluence of factors including a strong U.S. dollar rendering travel expensive, stringent border controls, and a perception of an unwelcoming environment, highlighted by the WTTC's CEO. Specific regional impacts are severe: 66% of businesses in New York's "north country" report substantial drops in Canadian bookings for 2025; New York City has lowered its 2025 tourist projections by 400,000 visitors and $4 billion in spending; and California anticipates a roughly 1% overall visitation decline and a 9% decrease in international visitors for the year. Domestic travel demand is also softening, with Americans curtailing travel spending amid economic uncertainties, impacting companies like Expedia (EXPE), which saw its stock fall over 7% due to weaker U.S. demand, which constitutes two-thirds of its business. While Bank of America data indicates a 3% rise in domestic travel as consumers opt for closer destinations, and April saw an 8% year-over-year increase in overseas visitors largely due to Western European travel and Easter timing, overall travel sentiment is deteriorating, with The Conference Board reporting a greater than 12% drop since January in Americans intending to fly. Consequently, major airlines such as Delta (DAL) are reducing summer schedules and United Airlines (UAL) is retiring aircraft and cutting Canadian routes. Compounding these issues are operational disruptions, including air traffic control failures and staffing shortages at major hubs like Newark, further eroding passenger confidence, with experts warning the peak negative impact on leisure travel may still be forthcoming.

Key Decisions for Investors

• Investors should exercise caution with U.S. airline stocks like DAL and UAL, closely monitoring their capacity adjustments, operational efficiency, and exposure to declining U.S. travel demand.
• Given Expedia's (EXPE) significant U.S. market exposure and reported softening consumer sentiment, scrutinize its upcoming performance for further signs of demand weakness before making investment decisions.
• Consider underweighting assets heavily reliant on U.S. international inbound tourism due to projected revenue declines and explore potential opportunities in companies benefiting from increased domestic travel to closer destinations or tourism to alternative international markets.