In this post, I’ll dive into the impact of U.S. tariffs on travel and hospitality, the challenges for our industry, and practical ways to respond.
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By adding tariffs, the U.S. is making an already bad situation worse. Its dollar has been too strong (though it’s softening now), and relationships with trade partners have been strained. This is already shaving about 1% from global tourism growth. For hoteliers and travel businesses, it is not business as usual. They’ll need to adapt quickly to mitigate the harms and navigate the new realities.
Setting aside the debates about tariffs, the ripple effects of the U.S. trade war have already slowed the travel industry’s recovery from Covid-era disruptions. While international arrivals to the U.S. reached 84% of pre-pandemic levels by the end of 2023, spending by overseas visitors was still lagging, down about 20% from 2019 (according to the National Travel and Tourism Office). In other words, the timing couldn’t be worse.
The U.S. economy had been the envy of the world as it recovered from the effects of Covid and high inflation. Unemployment was low, and it looked like the treasury had managed a soft landing. But that momentum is starting to face some headwinds. The U.S. dollar surged in value, making American exports more expensive and U.S. based experiences pricier for international travelers. At the same time, rising tariffs and global trade tensions are straining economic relationships. This translates into a strong-dollar, weak-goodwill vibe in the U.S. travel market. While domestic indicators like low unemployment and steady consumer spending are still positive, the broader economic landscape is becoming more uncertain. This is especially true for industries like travel and hospitality that rely heavily on international demand and stable supply chains.
Both sides of the tariff equation (demand and cost) are taking hits, creating a dangerous squeeze for hospitality businesses. On the demand side, boycotts and cancellations of U.S. travel plans are happening all over the world. There’s been some high-profile media stories about people from “friendly” nations like Canada and Germany being arbitrarily detained. While we’re starting to see some softening of the U.S. dollar, it’s still relatively high, further dampening demand. Visas are being cancelled, they’re harder to get, and fewer people are applying for them.
On the cost side, everything costs more as a result of the tariffs. Hotels are paying more for food, furniture, linens, tech, not to mention second-order effects from construction and other sectors that are also affected by higher costs. Airfares are higher too, which will further dampen demand, putting more pressure on occupancy and length of stays.
This is putting a lot of pressure on RevPAR and ADR. Higher input costs mean margins have to be protected, but hiking rates could accelerate the declines in occupancy faster than ADR can compensate. Competitors are facing the same pressures, further eroding ADR. Hotels are also likely to put off capital expenditures because everything costs more. This erodes product quality and guest experience, creating a death spiral of sorts.
Here in Canada, we’ve seen a strong “rally around the flag” effect (a patriotic boost in domestic loyalty) since the tariffs were announced. The widely publicized stories of travel gone awry aren’t helping. People are buying Canadian and choosing to travel domestically or to destinations outside the U.S. Land border crossings are down by a third. Air travel has been declining by double digits for two months now, and the trend is downward. Future flight bookings are down a staggering 70%! According to Tourism Economics, we are looking at a 20% YOY downturn in travel from Canada to the U.S. Even a 10% loss would mean over $2 billion in spending and almost 15K lost jobs. The impact will of course be proportional to each destination’s dependency on Canadian travel dollars.
We’ve been seeing a similar softening of demand from Asia and Europe, especially Western Europe. Travel from Western Europe overall is down 17% – 28% from Germany and 25% from Spain. Drops from Scandinavia are between 20-60%. While sentiment plays a role, visa anxiety and detention fears are likely the main drivers here. This matters a lot for hotels and travel companies. Overseas travelers tend to stay longer, meaning brands will now have to rely more on shorter stays from domestic and near-shore travelers from Mexico and Canada. Meanwhile the early, heavy tariffs on Canada and Mexico triggered patriotic backlash in both countries, further depressing outbound U.S. travel.
For hotels and travel brands, managing through the tariffs has been hard because of the uncertainty. It’s tough to know day to day what will happen: will tariffs go up? Be paused? Cancelled? As a business owner myself, I feel the pain of trying to grow and manage a business in this climate. Macro-wise, it’s not good for the economy: it’s going to erode investment, hiring, and growth, which will lead to broader declines in spending. We’re all hoping this is a temporary disruption, and that rational policy will prevail.
In the meantime, here’s how to stay resilient now and thrive later.
Short-term recommendations:
- Hedge against expected volatility of USD: If you’re a non U.S. hotel, you can lock in future exchange rates for known costs, or keep some USD reserves. If you’re a U.S. hotel with foreign currency expenses, you should hedge accordingly.
- Quote prices in local currencies: Selling to Canadian travelers? Quote in CAD. For Mexican travelers? MXN. This protects your margins and gives price certainty to guests.
- Shift marketing to closer markets: Focus on cross-border, short-haul, and drive markets less impacted by these sentiment changes. Geo-fence your ads, partner regionally, or work with influencers who target drive markets.
- Renegotiate supply contracts: Revisit pricing or delivery terms with vendors. Ask for price caps or more frequent reviews. If you don’t you’ll be stuck absorbing 100% of cost increases.
Long-term strategic moves:
- Revisit your brand positioning and messaging: Narratives that emphasize inclusivity could improve goodwill with neighbours and counteract the negative vibes. Purpose-driven and community-anchored brands command higher ADRs, even in downturns.
- Tell a better story: A compelling story will shape perception more than price. It will resonate beyond friction points. We can help with that.
- Align brand to higher travel motivations: Brands aligned to motivations like self-actualization and connection make travel feel less transactional and reduce price sensitivity. Ask us how.
- Diversify operating costs: Try to build in more flexibility with your overhead. Outsource the cleaning, do revenue-sharing on under-utilized facilities/amenities, and use on-call staff to match demand, further reducing risk.
Let’s remember to keep all this in proper context though. Travel has weathered wars, recessions, and pandemics – including that time the plane hit the side of the mountain just five years ago. We’ve done it before, and we can do it again. I say that not just as an observer, but as someone who had to steer a travel-focused business through a pandemic that temporarily ended travel.
This is also personal for me. I spent many of my early years in the U.S., and I have a deep emotional connection to it. That’s also why this rift feels so personal to Canadians like myself. The tariffs don’t just raise prices. They strain this bond we’ve built over decades of easy border crossings, free trade, shared values, Trader Joes, and Ryan Gosling.
Travel and hospitality brands that succeed will be the ones who fix the immediate issues with intention, keep a steady eye on the bigger picture, and never lose sight of the basics: put your guests first, stay nimble, and protect the relationships that matter most.
