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European travel companies reliant on Americans’ heavy spending power faced a huge stock market selloff on Tuesday morning as Donald Trump's recession warnings pushed the lucrative international travel sector into turbulence.
Shares in Europe’s biggest airlines and travel groups, including British Airways owner IAG and KLM-Air France, faced heavy losses alongside a stock market wipeout in the U.S. Shares in IAG fell more than 5% in early morning trading in London, while Air France-KLM tumbled over 6%.
IHG (InterContinental Hotels Group), which owns global hotel franchises including Crowne Plaza and Holiday Inn, fell more than 3% in early U.K. trading.
Travel companies with less exposure to the U.S., for example continental carriers Ryanair and EasyJet, experienced more subdued losses.
Trump confirmed investors’ worst fears in a Sunday interview with Fox News, when he admitted the U.S. could slip into recession as a result of his aggressive trade wars.
Trump said the U.S. was in a “period of transition, because what we’re doing is very big”, putting an end to hopes that his tariff threats lacked credibility. Shares in the S&P 500 plunged 2.7% on Monday as traders digested Trump’s comments.
The U.S.’s decline inevitably stoked contagion fears across the globe around how lower U.S. consumer spending could hit international markets. In Europe, that has been felt most immediately in the travel sector, which has grown accustomed to U.S. travelers’ deep pockets.
‘When the US sneezes, the rest of the world catches a cold’
European travel companies declined after Delta posted reduced revenue targets on the back of poor domestic demand for U.S. passengers, which cast doubt on Americans’ international spending power. That added to the pain caused by Trump’s comments on Sunday.
Americans have indeed proved to be a goldmine for Europe’s international travel operators. The trend of “revenge travel” helped pump billions of dollars of tourism money into the continent’s travel sector in the wake of COVID-19. A strengthening dollar against the pound and the euro in recent years has made travel across the Atlantic all the more enticing.
These travel trends were most in focus during the Summer of 2024, when Taylor Swift fans, often from the U.S., flocked across Europe to watch her Eras Tour, while an estimated 230,000 Americans flew to Paris for the Summer Olympics, according to the city’s tourism office.
The lucrative nature of these visits wasn’t missed by the decision-makers at Europe’s biggest travel companies.
Speaking to the Financial Times last week, Air France-KLM CEO Ben Smith said the airline was pivoting its business model to focus on the premium end of the travel market, in part because of the “amazing demand” it had witnessed from U.S. travelers.