The Travel Downturn and Amex: Navigating Risks and Opportunities in a Shifting Landscape

The decline in transborder travel to the U.S. has entered a critical phase, with geopolitical tensions, economic headwinds, and shifting traveler preferences reshaping the sector. For American Express (AXP), whose Global Business Travel (GBT) division is deeply embedded in the travel ecosystem, these shifts present both vulnerabilities and potential pathways to resilience. Let's dissect the risks and opportunities in Amex's portfolio—and what they mean for investors.

The Travel Sector's Troubles: A Perfect Storm

The data is stark: international visits to the U.S. fell by 14% year-over-year in March 2025, with Canadian arrivals plummeting by 26% and Western European arrivals dropping 17%. These declines are driven by a toxic mix of factors:
- Geopolitical Friction: The “America First” agenda, tariffs on Canadian goods, and inflammatory rhetoric have fueled resentment among key markets like Canada and Mexico.
- Economic Pressures: A strong U.S. dollar, rising travel costs, and corporate budget cuts have made international travel less affordable.
- Safety Concerns: High-profile border incidents—such as the detention of German tourists—have amplified fears of arbitrary enforcement, deterring leisure and business travelers alike.

The fallout is economic: Tourism Economics estimates a $9 billion loss to the U.S. economy in 2025 alone, with sectors like hotels, airlines, and retail bearing the brunt. For Amex, which derives significant revenue from corporate travel management, this is a direct threat.

Amex GBT: A Mixed Picture Amid the Downturn

American Express' Q1 2025 results reveal both resilience and vulnerability. Key metrics include:
- Revenue Growth: Total revenue rose 2% to $621 million, but travel revenue grew just 2% to $499 million.
- Transaction Trends: Total transaction value (TTV) increased 3% to $8.35 billion, down from 6% growth in 2024.
- Margin Expansion: Adjusted EBITDA surged 15% to $141 million, thanks to cost discipline and a 260 basis-point margin improvement.

The positives: Amex's focus on cost management and client retention (96% LTM retention) have insulated profitability. Its SME segment, which now accounts for $2.3 billion of new wins, is a bright spot—small businesses are less exposed to geopolitical risks and may benefit from domestic travel trends.

Risks to Amex's Portfolio

1. Corporate Travel Decline: Business travel volumes are projected to fall 18% in 2025 (per GBTA), directly impacting Amex's high-margin corporate services. Companies are relocating meetings to safer markets, and virtual alternatives are eroding demand.
2. Currency Headwinds: A strong dollar reduces inbound tourism and compresses margins for Amex's international operations.
3. Geopolitical Uncertainty: Ongoing tensions with Canada and Mexico could delay recovery, with traveler sentiment unlikely to rebound until policies soften.

Opportunities for Strategic Resilience

Amex's strengths position it to weather—and even capitalize on—the storm:
1. SME Growth: The SME segment, which grew to $2.3 billion in new wins, is less sensitive to international travel slumps. Focusing on domestic business travel and smaller corporate clients could buffer revenue.
2. Margin Discipline: With EBITDA margins expanding to 23%, Amex has flexibility to invest in digital solutions (e.g., AI-driven expense management) and content offerings that reduce reliance on transaction volume.
3. Shift to Leisure and Hybrid Travel: While business travel falters, leisure spending—particularly among affluent customers—is holding up. Amex's high-end credit card portfolio (e.g., Centurion) and travel partnerships (e.g., luxury hotels) could capture this demand.

Investment Takeaways

• Hold for the Medium Term: Amex's strong margins and balance sheet ($26M free cash flow in Q1) provide a cushion, but near-term growth is constrained.
• Beware of Earnings Revisions: The company lowered its full-year EBITDA guidance, reflecting cautious expectations. Investors should monitor transaction trends and geopolitical developments closely.
• Long-Term Play: If Amex pivots effectively to SMEs and leisure, and U.S. travel policy improves, it could outperform peers. However, this hinges on a geopolitical thaw—a big “if.”

Conclusion

The decline in transborder travel is a double-edged sword for American Express. While its corporate travel business faces headwinds, its diversified portfolio and margin strength offer tools to adapt. Investors should remain cautious in the near term but keep an eye on strategic shifts—like SME growth and hybrid travel—that could redefine Amex's role in the post-pandemic travel landscape. For now, hold with patience: the path to recovery is uncertain, but Amex's fundamentals position it to navigate the storm better than many peers.