Portfolio manager behind Canadian listed travel ETF explains potential implications of more US-averse travellers
As early as March Accor group CEO Sebastien Bazin sounded the alarm bell on US travel bookings. In an interview with Bloomberg, the hotel executive said the number of Europeans booking hotels in the US this summer had declined by 25 per cent, despite global increases in bookings. As more travel data has come out, there is now a distinct trend that back’s up Bazin’s claim that international travellers are looking to avoid the United States.
Mike Dragosits, Portfolio Manager at Harvest ETFs, explains that a number of different sources have mapped this trend. Canadian travel to the US, for instance, was down 12 per cent year over year in February. Non-resident travel to the US was down around 2 per cent year over year and 9 per cent from 2019 levels in February as well. Looking at March air passenger travel, trips to the US are down 9.7 per cent year over year and down 13 per cent from pre-pandemic levels.
“We're definitely seeing that pullback. And you can kind of take some indicators from some of the booking commentary from the airlines and even from some of the hotels as well,” Dragosits says. “There is a slowdown that is showing up in the data. And you can kind of lump that into sort of the Trump tariff policies, Trump hostilities as well, as, you know, a stronger US dollar.”
Dragosits, who is on the management team of Harvest’s two dedicated Travel ETFs TRVL and TRVI, explains that the downturn in travel to the US may not just be a product of anti-Trump hostility, fear of detainment, and backlash to tariffs. While those factors have played a role, Dragosits paints a foggier picture, one where global economic uncertainty, sluggish growth, and weaker consumption patterns all seem set to hold back the short-term prospects for travel stocks.
The travel industry is cyclical. Dragosits emphasizes the fact that travel & leisure companies remain vulnerable to global economic trends. With a global economy left more uncertain due, in large part, to changing US trade policy under Trump, there is less propensity to spend on a big trip. Higher inflation expectations, too, should see reduced discretionary spending and some short-term hits to the travel sector.
While a drop in international arrivals may seem like bad news for US travel companies, it’s notable that many American consumers travel domestically. In assessing prospects for US travel, Dragosits says its important to gauge the overall outlook for the US economy. That picture remains mixed, he says. According to a Bloomberg industries survey of vacation spending expectations, there has been a slight decline in the expectation of increased travel spending this year, but the majority of US consumers still expect to spend more on trips in 2025 than they did last year. A UBS survey of US travellers found that 83.1 per cent expect to spend on air travel in the year ahead, which Dragosits says is the highest number that survey has found since 2016.
There are other reasons for positivity, according to Dragosits. He notes that Airlines and hotels have still held in quite well. Hotel occupancies, for example, are at their pre-COVID levels. Spending in the luxury and ultra luxury category remains high as well. Cruise lines, he says, have been the leading light for travel. He notes a few factors that make cruises better performing for now. The first is that cruises tend to be booked almost a year in advance, meaning any negative impacts of economic uncertainty may be more lagged. As well, while a cruise operator like Royal Caribbean might be a US company, many cruises offer trips with little or no travel to the United States, which can be more attractive to those international travellers looking to avoid that country.
Amid a cloudy global outlook and uncertain short-term prospects for this industry, Dragosits stresses the importance of diversification across geographies and sentiments. He notes, for example, that within the hotels segment that his ETFs hold, they retain exposure to the budget, mid-range, and luxury ends of the market. While downturns may hit the budget end, luxury remains relatively intact. That sort of broad diversification, he explains, can help smooth out particular regional or subsector periods of weakness.
In addition to diversification, Dragosits also stresses the long-term prospects for travel companies, which he believes is rooted in demographic trends that will outlast this particular economic cycle.
“There's still a pretty good long term narrative for the travel industry,” Dragosits says. “In the short-term, nothing is a foregone conclusion, things can change rapidly on a tweet. But the travel industry has witnesses a resurgence since the pandemic. We’ve also had four trends in place for some time. Baby boomers have more time and money to spend on travel. Millennials and Gen X are really prioritizing experiences over buying things. The ease of booking, too, has been good for travel as has the affordability of travel. Finally, remote working has allowed for more kinds of travel. We believe travel is a good area to be looking at in the medium to long term.”
