Investors shun tourism investments in stock market correction
The S&P 500 officially hit correction territory today, led by declines in mega-cap technology companies.
It has been recent downturns in tourism-related businesses, however, that are an ominous sign for how investors expect the sector to perform.
Shares for airlines, hotels and online travel companies have declined by more than the broader market since the S&P 500 last hit an all-time closing high, on Feb. 19.
Canada’s Toronto Stock Exchange, buoyed by metals and energy, has only fallen 5.55 per cent, to 24,203.23, since Feb. 19, so it is far from being in correction territory.
B.C.’s tourism entrepreneurs are also grappling with gauges of consumer confidence that show an apprehensive public wary to spend in the face of on-again-off-again tariffs from U.S. President Donald Trump.
The decline in tourist visits has already started.
Statistics Canada Monday released preliminary data showing 4.1 million international visitors arrived in Canada in February, down 10.9 per cent from February 2024.
This is the first year-over-year decline in visitors for a month in almost four years – since March 2021, when the comparable month in 2020 included the final weeks of pre-pandemic travel.
Stock market investors seem to think tourism is set to suffer.
The S&P 500 last hit an all-time closing high on Feb. 19, at 6,144.15. It then officially notched a correction, or at least a 10-per-cent decline, this afternoon, with a 5,521.52 close – down 10.13 per cent from that recent high.
Airlines’ share prices have been crushed since Feb. 19, with downturns sharper than the broader market.
Air Canada’s (TSX:AC) shares fared better than most competitors, falling 12.95 per cent, to $15.19.
Delta Air Lines Inc. (NYSE:DAL) shares plunged 32.47 per cent, to $43.92, while American Airlines Group Inc. (NYSE:AAL) shares fell 33.31 per cent, to US$10.67, and United Airlines Holdings Inc. (NYSE:UAL) shares fell 34.37 per cent, to US$69.90.
The world’s largest hotel company, Marriott International (NYSE:MAR) since Feb. 19 has seen its shares decline 17.48 per cent, to US$237.29.
Online booking companies have similarly sunk by far more than the broader market.
Booking Holdings Inc. (NYSE:BKNG) shares fell 15.95 per cent, to US$4,295.40 while Expedia Group Inc. (NYSE:EXPE) shares fell 23.92 per cent, to US$157.11.
Business confidence in general is low, and Trump’s on-again-off-again tariffs are causing entrepreneurs to be uncertain about making large capital expenses, or to hire more staff.
Worse, the friction felt in the tariff war has unleashed animosity, at least in Canada, toward Americans. Booing the U.S. national anthem at sporting events has become somewhat common, and reciprocal booing of the Canadian anthem in the U.S. has happened many times.
That resentment could dampen Americans’ enthusiasm for visiting Canada.
“An anthem booing contest will solve nothing,” Destination Vancouver CEO Royce Chwin told BIV after his March 11 address to the Greater Vancouver Board of Trade.
“We have to remember what unites this country. That message cannot be lost. We’re the biggest trading partners. We’re allies. We’re each other’s biggest customers.”
Destination Canada’s Vancouver-based CEO Marsha Walden told BIV that while much remains uncertain, she knows that people love to travel, and they love Vancouver.
“We’re looking at multiple scenarios: everything from there being a minor disruption to there being a very, very severe disruption,” she said. “Generally, what we find is that consumers’ desire for travel is a very strong urge. We see it prevail against all manner of things, including the pandemic, when travel came roaring back the minute people had the opportunity.”
One upshot Walden said she sees is that a harsh trade war could weaken the Canadian dollar, and encourage more budget conscious travellers. That lower dollar, and the current Buy Canadian trend, could also encourage more visits from travellers in other provinces.
By and large, however, Walden said that most international visitors do not check currency rates before coming to Canada, or at least do not make the currency’s value a determinant of whether they will visit.
This is, however, a good time for governments to take notice of how valuable tourism is for the economy and to take steps to protect it.
She lamented that governments have been focused on increasing housing supply more than on increasing hotel development.
“Allowing mixed-use designations in cities will also encourage a combination of capital uses that we think will include hotels,” she said.
Walden praised Vancouver city council for taking steps to encourage hotels but said more could be done.
“It’s all municipalities that have not necessarily prioritized tourism development needs versus other needs,” she said.
Vancouver consistently has the highest hotel-room prices in Canada, although it was the only major city in 2024 to see a year-over-year decline in hotel occupancy, according to a new Avison Young report.