Travel Demand Hits the Brakes as America’s Tourism Industry Faces Its Harshest Reality Check Since COVID

What started as a hopeful year — with expectations of strong, sustained travel demand — has turned into a reality check for America’s tourism sector. Now facing its sharpest downturn since COVID-19, the industry is bracing for a projected $12.5B drop in foreign tourist spending, as international travelers increasingly opt for destinations outside the US.

The travel squeeze: The hit comes after the One Big Beautiful Bill Act raised travel fees and cut nearly all federal funding for Brand USA, the agency tasked with promoting US tourism abroad. With visits now more expensive and less appealing, airlines were caught off guard by the slowdown. Many had banked on continued momentum from last year, but weaker demand forced major fare cuts and turned 2025 into a year of mounting losses.

• American AirlinesAAL
  reversed its January profit forecast into a projected Q3 loss, with shares falling 7% last week amid signs of “domestic consumer weakness.”
• Similarly, Southwest AirlinesLUV
  revealed that $1B in expected EBIT had vanished, with shares down 8% during the same period.

Travel’s Half-Full Glass

Amid the slowdown, Melius Research’s Conor Cunningham still sees room for optimism — he believes travel stocks are primed for a breakout, calling it a “secular growth industry” poised to outpace GDP. His outlook is rooted in a lasting shift in consumer behavior: more people are prioritizing experiences like travel over material goods. Supporting that view, global air traffic surged 10.4% in 2024 — surpassing 2019 levels by 3.8%. That strength looks durable, as Delta’sDAL

CEO Ed Bastian recently affirmed that high-income households (those earning $100K+) are still spending, keeping airlines optimistic for the rest of 2025. Recent moves in the sector reflect that underlying strength:

• HiltonHLT
  boosted its 2025 profit outlook, with CEO Christopher Nassetta noting the economy is “set up for better growth over the intermediate term,” which should boost travel demand.
• Similarly, HSBC raised Booking Holdings’BKNG
  price target to $7.07K — a 25% upside — citing growing confidence in the company’s ability to capitalize on strong, sustained international travel, particularly in Europe and Asia.

Mind the (recovery) gap: The optimism has merit — but it’s not the whole story. The US is seeing a return of tourists, just not from its usual markets. Canadian visits, once the backbone of US tourism, dropped 26% in June alone, hitting revenue hard. Travel from Mexico rose 12.5% over the same period, but not enough to offset broader declines. With total international arrivals still falling and hotel occupancy down for four straight months, no one’s flying blind to how fragile this recovery still is.