On-again, off-again tariffs and their toll on travellers

The on-again, off-again tariff policy of the Trump administration has wreaked havoc across the global economy, including the travel industry.

Until April 9’s 90-day suspension of reciprocal tariffs, the US dollar was showing signs of weakening, hotels faced higher operating costs and travellers were nervous about booking.

Even before reciprocal tariffs were imposed, The Conference Board’s latest index on consumer confidence had dropped to the lowest level in 12 years, possibly driving a chill in travel demand. And, in a survey of its members in early April, the American Society of Travel Advisers said nearly 54 per cent reported a decrease in consumer demand driven by economic concerns.

For the moment, a 10 per cent baseline tariff against most countries has been left in place, with China facing a 145 per cent tariff on its goods.

While it is unclear what will happen after the 90-day pause, here is a look at how tariffs, or just the threat of them, may affect the travel industry.

The dollar holds, for now

Early in the year, the dollar was close to a par with the euro. It is now about US$1.10 (S$1.46) to the euro, which means a hotel room that costs €100 (S$150) would be around US$110.

“Normally, you would expect the US imposition of tariffs to be mildly positive for the US dollar,” said Dr Michael Melvin, executive director of the master of quantitative finance programme at the University of California, San Diego.

“We saw effects like this in the first round of announced tariffs on Mexico and Canada, which were quickly reversed when the President announced a reversal of those tariffs,” he said.

But retaliatory tariffs from other countries could neutralise the effect on the dollar, according to The Budget Lab at Yale University, a non-partisan policy research centre.

Though the dollar has fallen slightly against other currencies, including the British pound and Japanese yen, foreign exchange rates are still relatively favourable for Americans abroad, especially in Canada and Mexico.

Slowing air traffic

For airlines, tariffs may increase the cost of building airplanes, but the carriers have more immediate concerns.

“The problem now is economic uncertainty and the risk of a recession,” said Mr Brian Sumers, who writes the aviation newsletter Tthe Airline Observer, noting that airlines have seen slower demand since US President Donald Trump’s inauguration.

“When people are worried about the future, they tend to spend less money. They don’t know how their investments will hold up, or whether they will have a job in six months, and so they hold off on planning travel and buying plane tickets.”

In March, Bank of America analysts found domestic travel was off to a slow start in 2025, which they attributed to falling consumer confidence, bad weather and a late Easter.

How this will play out in airfares remains to be seen, as airlines trim capacity to maintain prices. This week, Delta Air Lines said it would reduce planned capacity growth in the second half of the year.

“On the whole, I expect prices will fall and we will see more empty seats,” Mr Sumers said.

As lower-income households cut discretionary expenses, low-cost airlines are most vulnerable, said Mr Jonathan Kletzel, the transport and logistics leader at the business consultancy PwC. “Discounted carriers are going to be feeling this a lot more,” he said.

Hotel hurdles

As buyers of everything from sheets and furniture to electronics and wine, hotels are threatened with higher operating costs as tariffs increase the price of imports.

“While hospitality businesses may absorb some of these added expenses in the short term, it’s likely that at least part of the increased cost will eventually be passed on to customers,” said Associate Professor Becky Liu-Lastres from the department of tourism, event and sports management at Indiana University Indianapolis.

In addition, the industry, which relies on immigrant and visa-holding workers, faces a possible labour shortage related to the administration’s strict stance on immigration, said Professor David Sherwyn, who teaches hospitality, human resources and law at Cornell University’s Nolan School of Hotel Administration.

In the past, hotels have dangled lower rates to attract guests, but if they have limited staff to manage a full house, they may accept lower occupancy to keep rates up.

Mr Jan Freitag, national director of hospitality analytics at CoStar Group, a commercial real estate analyst firm, said hotel renovations and new construction were likely to slow as costs rise.

Domestic travel gains

In past economic downturns, Americans tended to travel closer to home and to book closer to departure, two trends that experts say may return.

In a survey of 1,000 adults conducted from April 3 to 5, marketing and communications agency MMGY Global found that 83 per cent of respondents still intended to travel – down just 4 per cent since a similar survey in February – but that most intended to alter their plans.

One-third planned to travel closer to home, 29 per cent said they would swop an international destination for a domestic one and 24 per cent would opt for a cheaper mode of transport.

“On the very high end, I would not be surprised if they continue to travel, but middle Americans with their 401(k)s (retirement plans) shaken may say, ‘let me stay close to home’,” said Mr Freitag of CoStar.

Cruising in choppy waters

Travel warnings from foreign governments related to recent detentions at the US border, and travel boycotts by Canadians, who have been stung by tariffs and calls to make their country the 51st state, threaten inbound international tourism, including cruises, many of which depart from US ports for the Caribbean.

“This will also have an effect on the cruise industry,” said economics professor Vinod Agarwal from Old Dominion University in Norfolk, Virginia. “Canadians who want to travel to the Caribbean may not want to go through the US any more.”

Cruises have more tariff protection than other travel industries because they often buy supplies such as food in foreign ports, exempting them from import fees, said Professor Gordon Ho, who teaches management and organisation at the University of Southern California’s Marshall School of Business and is a former chief marketing officer for Princess Cruises.

Cruise bookings also tend to be made months or years in advance. It remains to be seen how many passengers will cancel if economic conditions worsen.

“For those who search, there will be opportunities for great values in the months ahead across all the travel industry as it tries to make up for lost international tourism,” Prof Ho said. NYTIMES