How Declining Travel Demand is Affecting the US Economy and Tourism

The Dwindling Travel Demand: A Clear Threat

A notable weakening in travel demand, driven by trade uncertainties and shifting consumer sentiments, is poised to significantly impact the U.S. economy. Major airlines are reevaluating their forecasts while experts anticipate billions in losses attributed to reduced foreign and domestic travel spending. This downward trend can have repercussions that extend well beyond the financial sector, especially for the tourism industry.

Understanding the Economic Ripple Effects

As travel demand declines, the implications for the U.S. economy are manifold. Analysts have flagged that travel-related industries may face billions in losses this year. J.P. Morgan analysts noted that anti-American sentiments could deter international tourism, which is classified as an essential service export. According to their analysis, lower foreign travel spending could shave off 0.1% from the nation’s GDP, with possible declines reaching anywhere between 0.2% to 0.3% of GDP.

The impact is projected against a backdrop where, as of the first quarter of 2025, the U.S. GDP stands at approximately $23.53 trillion. This downturn could represent losses ranging from $23 billion to $71 billion, based on various calculations.

Travel Industry Response to Economic Pressures

Recently, Delta Air Lines, a significant player in the international travel market, reported that travel demand has “largely stalled,” prompting the airline to withdraw its annual forecasts. Other carriers such as Southwest Airlines, American Airlines, Alaska Air, e Frontier Airlines followed suit by revising their guidance in light of widespread uncertainties surrounding trade policies. Notably, United Airlines presented two conflicting forecasts, indicative of the industry’s precarious situation amidst fluctuating trade tensions that echo the uncertainties felt during the COVID-19 pandemic.

Concerns are not limited to airlines; the vacation rental giant Airbnb anticipates second-quarter revenue to fall short of Wall Street expectations, while hotel operators like Hilton report a “wait-and-see” approach among travelers. This sentiment reflects broader consumer hesitations, driven by perceptions of U.S. tariffs and economic policy, affecting tourists’ decision-making processes regarding travel to the U.S.

The Declining Foreign Tourist Market

As President Trump’s tariffs remain in flux, global consumers are caught in a complex web of choices, leading to decreased visits to the U.S. In 2024, spending by international travelers contributed to 0.7%, or $215 billion, of U.S. GDP, as noted by J.P. Morgan estimates. It is precisely this kind of spending that the country cannot afford to lose; a mere 10% decrease in such expenditures could translate into a direct 7-basis point blow to GDP.

Domestic Spending: A Growing Hesitation

Concerns over potential recessions, compounded by household budget pressures, mean that Americans are becoming increasingly cautious about non-essential expenditures. In 2023, the travel and tourism sector represented approximately 3% of the GDP and created over six million jobs, as per the Bureau of Economic Analysis. Therefore, changes in domestic spending behavior have major implications for tourism and related services.

Looking Ahead: The Future of Travel and Tourism

With indications of slow starts in early months of 2025, the overall economic outlook for travel remains uncertain. Card data aggregated by the Bank of America showcases a decline in lodging, tourism, and airline spending as of the week ending March 22. Furthermore, recent data revealed that the U.S. economy contracted for the first time in three years during the initial quarter of the year, as consumer sentiments remained on shaky ground in April.

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