Travel Stocks Falter Amid CEO Warnings of Uncertain Demand

The travel industry, once a symbol of post-pandemic recovery, now faces headwinds as CEOs openly acknowledge economic uncertainty. Hilton CEO Christopher Nassetta’s recent remarks—that travelers are in a “wait-and-see mode” due to macroeconomic pressures—highlighted a sector grappling with demand softness, tariff-driven costs, and shifting consumer behavior. The ripple effects are clear: shares of travel giants like Booking Holdings and Hilton have dipped, while analysts caution that 2025 could test the resilience of even the most robust brands.

Hilton’s Mixed Results: Resilience in Business, Weakness in Leisure

Hilton’s Q1 earnings revealed a stark divide between segments. While group and business travel remained strong—group revenue rose 6% year on year, and small-business transient RevPAR increased 2%—leisure demand faltered, with RevPAR growing just 1%. Overall, systemwide comparable RevPAR rose 2.5%, lagging expectations, and Hilton revised its full-year outlook to a potential 2% decline from its prior 2-3% growth target.

Nassetta attributed the slowdown to travelers’ caution amid “rapidly changing macroeconomic conditions.” Despite this, Hilton’s development pipeline remains robust, with 32,600 rooms approved in Q1, bringing total pipeline units to 503,400. The company is doubling down on luxury and lifestyle brands, which now account for 30% of openings, betting they will weather a potential downturn better than economy-focused hotels.

Booking Holdings’ Caution Amid Strength

Even as Booking Holdings reported record Q1 results—319 million room nights booked, $46.7 billion in gross bookings, and $24.81 in adjusted EPS—CEO Glenn Fogel (implied in the data) warned of looming risks. Tariffs on steel, aluminum, and furniture, announced by the U.S. government, “shook global markets” and could dampen future demand. The CEO’s comments underscored a broader industry dilemma: while short-term bookings hold up, long-term planning is hampered by uncertainty.

Analysts note that tariffs have already slowed construction of new hotels, with development pipelines at risk of shrinking by late 2025. Truist’s Michael Scholes estimates that rising costs for FF&E (furniture, fixtures, and equipment) could push hotel operating expenses 1.3% above RevPAR in select-service hotels, squeezing margins.

The Bigger Picture: A Sector on Edge

The travel industry’s challenges extend beyond individual companies. American Airlines CEO Robert Isom withdrew full-year guidance, citing “significant weakness in discretionary travel,” while analysts warn hotel REITs face a potential 5% RevPAR decline and 10-15% EBITDA drop in a mild recession.

Yet not all trends are negative. Hilton’s luxury and conversion strategies—such as its Curio Collection and planned expansion to 27 brands—are attracting investors seeking premium assets. Meanwhile, business travel, which accounts for 57% of North American buyers’ budgets, remains a bright spot, with group bookings surging 6% in Q1.

Conclusion: Navigating the Crossroads

Investors must balance near-term risks with long-term opportunities. Hilton’s revised RevPAR forecast and Booking’s tariff-driven caution reflect an industry in flux. Key data points—such as Hilton’s 6-7% net unit growth target for 2025, its 503,400-room pipeline, and the 30% share of luxury/lifestyle openings—suggest strategic bets on resilience.

However, the sector’s fate hinges on macroeconomic clarity. If tariffs ease and leisure demand rebounds, stocks like BKNG and HOT could recover. But with analysts like R.W. Baird’s Michael Bellisario warning of a potential 5% RevPAR decline, investors should prioritize companies with strong liquidity, premium brands, and exposure to corporate and group travel. For now, the travel industry’s path forward remains as uncertain as the travelers it serves.

In this environment, patience—and a focus on high-margin segments—may be the best strategy for investors navigating the rocky terrain of 2025 travel.