What President Trump could mean for travel

By Mike Eggleton, Senior Manager Analytics & Research

It’s difficult to say exactly what impact the U.S. presidential election of Donald Trump will have on the outlook for the U.S. economy. We still don’t know how many of Trump’s pre-election promises will translate into policy action. But we can still classify his policy commitments according to their likely effect:

Trump Policy Commitments

By doing this, it’s possible to create two extreme outlooks for the U.S. economy: a Worst-case and a Best-case scenario.

A program of huge tax cuts, increased military spending, higher tariff barriers for imports and stricter controls on immigration would lay the foundations for a Worst-case scenario. Such actions are likely to curtail economic growth – Oxford Economics estimates the U.S. economy could grow 4% less than it would otherwise have done between 2017 and 2020. And a descent into recession cannot be completely ruled out.

Under the Best-case scenario, Trump would resist his protectionist instincts and impose few new controls on immigration. There would be tax cuts for wealthier households and companies. And he’d launch a vast program of infrastructure spending. This would promote a small acceleration in economic growth above its current path. But it could also mean higher debt, long-term interest rates and inflation and a stronger dollar.

And the optimism associated with this scenario could prove to be short-lived. The stronger dollar would widen the U.S. current account deficit, by making exports more expensive and imports more affordable. If Trump then tried to rectify this situation by adopting more protectionist trade policies, we might still find ourselves in the Worst-case scenario after all.

Implications for travel

U.S. GDP and Business Travel Spending Graph
U.S. GDP and Business Travel Spending Graph

It will be some time before we have any clarity about what a Trump administration means for the travel industry, but based on his campaign rhetoric, the Worst-case scenario features plenty of factors that could depress travel: protectionism, stricter border controls and international isolation. The prospect of Trump pursuing policies associated with this scenario is unlikely to be good news for the U.S. economy in the near term.  And that’s bad news for U.S. corporate travel too. In the past, spending on domestic business travel has closely tracked GDP growth. We should therefore expect growth in U.S. business travel to remain weak, if this scenario materializes.

While Trump won’t have complete freedom to act, his stance on the Trans-Pacific Partnership (TPP) and key administration appointments suggest he’s unlikely to soften his position on a number of these issues. There is a real threat of geopolitical and economic stability that would affect business travel in many ways. Hotels already note “broad uncertainty” among their corporate customers, which is delaying investment, hiring and travel decisions.[1]

But, there may be some good news too. Income and corporate tax cuts could potentially feed through to stronger GDP growth; and that would stimulate business travel. The U.S. aviation industry should welcome the prospect of infrastructure investment. The modernization of the U.S. air traffic control system, for example, would enhance passenger safety and make their journeys smoother, reducing traveler stress.

And as an hotelier himself, Trump should have a better appreciation of the challenges faced by the hotel industry, and may be more receptive to their lobbying. But his position on immigration will be a problem, given the hotel industry’s reliance on foreign-born workers.

The upsides of a Trump presidency will be of little comfort to airlines and hotels alike, if they are accompanied by actions that depress travel demand: the building of “walls”, protectionist economic initiatives, or an approach to diplomacy that sparks geopolitical unrest. Actions aimed at enhancing national security or simply limiting immigration have real potential to impede travel to the U.S. from some of its main source markets. And by proceeding with much of his campaign rhetoric, Trump risks alienating allies and trading partners alike, damaging their U.S. travel intentions.[2] According to a Phocuswright survey of 1,500 European travelers, Trump’s election has made “one in five travelers in the U.K. and France and nearly one in three German travelers….less likely to travel to the U.S.”[3]

Trump has vowed to reverse the reinstatement of U.S. diplomatic relations with Cuba, which had enabled U.S. carriers to resume scheduled services in 2016. American Airlines has already cut back its Cuba services, because of disappointing demand, in what quickly became an overcrowded market.[4] Given the uncertainty over future relations with Cuba, other airlines may now follow American’s lead. Trump’s comments about Mexican immigration have also raised concerns about trans-border traffic, which has been growing rapidly after a liberalized air services agreement (ASA) came into effect in August 2016.

The Gulf carriers and Norwegian’s newly approved U.S.-based division (NAI) could easily find themselves the early populist targets of any policy shift towards protectionism. Dealing with these airlines would prove popular with voters: U.S. airlines have long demanded limits on Gulf carrier access, while the launch of NAI faced fierce union opposition. Any limitation of their activities would reduce traveler choice and may lead to higher airfares because of less competition. Similarly there may be a halt in the expansion of Chinese airline services to the U.S., which has seen carriers like Hainan Airlines and Sichuan Airlines launch direct flights from secondary Chinese cities, including Changsha, Hangzhou and Jinan.

It remains to be seen whether or not Trump will promote such actions. By the time his Administration reaches its 100-day milestone, we should have a better idea of his actual policies, and what they might mean for travel.

 

Do you have questions or comments regarding this report? Join our conversation on social media, or reach out to Mike directly at Mike.Eggleton@bcdtravel.co.uk to share your thoughts.

 

[1] Business Travel News, What Trump’s presidency could mean for corporate travel, November 9, 2016

[2] Oxford Economics, client briefing, November 2016

[3] Phocuswright, Election impact: Some European travelers may be less likely to visit the U.S.

[4] Flightglobal, December 2, 2016