A cocktail of pressures are forcing hospitality decision makers to carefully adjust their strategies in order to survive. Image credit: stryjek / Adobe Stock.

The global economy has entered the second quarter of 2025 in a state of heightened volatility. US President Donald Trump’s announcement of a wave of near universal new tariffs on “Liberation Day” (April 2) was met with swift retaliatory measures from major trading partners— driving effective tariff rates to their highest levels in nearly a century.

The International Monetary Fund (IMF) swiftly slashed its projections for global economic growth to 2.8% in 2025 and 3.0% in 2026—down from the previously forecast 3.3% for both years and well below the 2000–2019 average of 3.7%. The IMF’s revised expectations for global inflation are 4.3% in 2025 and 3.6% in 2026, with upward revisions for advanced economies and slight downward revisions for emerging market and developing economies in 2025. But even these downgraded forecasts are already in doubt.

The US administration’s abrupt imposition of new tariffs has rattled financial markets and heightened fears of a global trade war. Amid this uncertainty, demand is softening, volatility remains high, and investors are recalibrating expectations across sectors. For hospitality, these shocks represent not just headwinds—but potential catalysts for a long-overdue transformation.

Travel and tourism businesses, which are acutely sensitive to disposable income, cross-border flows, and international trade dynamics, now face a rapidly shifting macroeconomic landscape. Tariffs, inflation, tightening regulations, and intensifying sustainability demands are reshaping the rules of engagement. Not all players will adapt. But those that do could steer the sector toward a greener, smarter, and more resilient future.

1. Geopolitical Risk: Fragile Foundations

Few sectors are as exposed to geopolitical tremors as travel and tourism. Destinations marked by conflict or unrest suffer steep visitation declines, triggering ripple effects from job losses to economic contraction. Yet even in the absence of war, political instability can send shockwaves.

Markets reacted sharply to Trump’s so-called Liberation Day tariff announcement. Within a week, major hotel groups saw their share prices plunge: Marriott and Hilton fell 13%, IHG 10.3%, and Wyndham 14.9%. The message from investors was clear—diplomatic breakdowns and trade disruptions are deeply destabilizing.

According to GlobalData, the travel sector now faces an even more precarious year. Previous forecasts of modest gains in international arrivals to the US (up 1.3%) and outbound travel (up 5.3%) may be downgraded if tariffs trigger price hikes and cut into consumer spending. Well-publicized detentions of foreign nationals by US border and immigration officials have led to sharp declines in the number of European, Canadian and Mexican travelers visiting the US, amid fears of a “hostile border” under President Trump, threatening the world’s most lucrative air routes. For hotel developers, cost pressures are mounting too, with up to 20% of project budgets tied to internationally sourced materials.

2. Inflation and Cost-of-Living Strains

Inflation continues to reshape travel behaviors. Families are opting for closer, shorter, and more affordable trips. Corporate travel is under scrutiny, with premium services often the first to be slashed. Even high-net-worth individuals—typically resilient spenders—are not enough to buoy premium providers against a broader wave of consumer caution.

A Q4 2024 GlobalData survey found that 30% of US consumers were “extremely concerned” about their financial situation, and another 20% “quite concerned.” In this climate, tourism remains a luxury easily deferred.

There is, however, one silver lining for US hospitality operators: currency depreciation. A weakened dollar—pressured by inflation and trade tensions—could stimulate inbound tourism, offering a reprieve to domestic players. But the opposite holds for outbound travel agencies, whose clients now face higher costs abroad due to exchange rate shifts.

3. Regulatory Complexity and Compliance Costs

Across jurisdictions, regulation is tightening. New mandates around emissions, labor conditions, data protection, and sustainability reporting are piling up. For global operators, navigating this legal maze is costly and complex. For small and medium-sized enterprises (SMEs), it can be overwhelming.

In response, a new class of artificial intelligence (AI)-powered compliance solutions is emerging, helping travel firms automate and adapt. But for businesses yet to modernize their systems, regulation is a lurking pitfall.

4. ESG Pressures Enter a New Phase

Environmental, Social, and Governance (ESG) concerns are no longer niche. They are now consumer-driven imperatives—particularly for younger travelers who are willing to pay more for eco-conscious experiences. The sustainable tourism market, worth $208.2 billion in 2023, is projected to grow at over 12% annually through 2028. Demand is real—and rising.

But delivering on ESG promises is difficult in a sector with a heavy carbon footprint. Aviation alone accounts for up to 3% of global emissions, according to the International Energy Agency. Hotels, cruise ships, and infrastructure projects add further strain.

Carbon offsetting, energy-efficient buildings, and sustainable fuels are becoming more common, but skepticism remains. Many stakeholders question whether current measures are enough—or merely cosmetic.

5. The Social and Governance Dimensions

Sustainability is not just about the environment. Over-tourism has become a lightning rod issue. Cities like Venice and Barcelona are pushing back with aggressive policy changes, including Airbnb rental caps and tourist taxes, to restore balance for residents and businesses.

On the governance front, inconsistent ESG reporting continues to undermine trust. “Greenwashing”—where companies exaggerate or selectively disclose their credentials—has sparked growing backlash. Certification initiatives like the Global Sustainable Tourism Council (GSTC) are gaining traction, but until regulation becomes more consistent, transparency will remain elusive.

The Road Ahead: Reset or Retreat?

The hospitality industry is at a crossroads. It must respond to mounting volatility, shifting consumer expectations, and a growing regulatory burden. Yet this moment of crisis also presents a rare opportunity—to rebuild on firmer foundations.

The path forward will require leaner, more agile operating models. Success will depend on digital transformation, data-driven decision-making, and authentic sustainability efforts. Whether it’s using AI to streamline pricing and compliance, investing in low-impact infrastructure, or rethinking tourism through a community lens, the next wave of winners will be those that adapt first.

Discover further insights

To learn more, download our new report—Emerging Trends in North American Hospitality: 2025 and Beyond—published in association with Sterling Technology—the provider of premium virtual data room solutions for secure sharing of content and collaboration for the M&A, private equity, real estate, investment banking, corporate development, capital markets and legal communities engaged in travel, tourism and hospitality dealmaking.