2026 Q1 Economic and Travel Report: Early Signs of Travel Development Face New World Uncertainty

Quarterly Economy & Travel Industry Summary

A Reminder to Expect the Unexpected

• Tailwinds primed to raise the financial system in 2026 have been counterbalanced by the outbreak of battle with Iran.
• The Iranian battle has notable financial penalties, most clearly on power costs, together with gasoline.
• Headwinds from the battle with Iran prompted us to scale back our 2026 Gross Domestic Product progress forecast from 2.8% to 2.4%.

As the yr started, the tariff scenario appeared to have largely stabilized, inflation was anticipated to ease, and tax returns inflated by provisions in final yr’s One Big Beautiful Bill Act would help progress in client spending. The OBBBA additionally included incentives to encourage enterprise funding, broadening enterprise spending past final yr’s slender give attention to synthetic intelligence-related tasks.

The optimism of January and February seems like a fading reminiscence, overshadowed by the battle in Iran that started on February 28. The surprising battle has generated notable financial penalties, most clearly on fuel costs. The value of standard unleaded gasoline surpassed $4 per gallon in March, versus a median of $2.96 per gallon in January.

The spike in power costs had an eye-opening impression on headline inflation, simply as tariff results have been shrinking within the rearview mirror. March’s 0.9 % bounce within the Consumer Price Index (CPI) – the most important since 2022 – was pushed by power. The present oil spike has but to reverberate meaningfully into broader inflation, however that gained’t maintain for lengthy. Elevated gasoline prices are starting to seep into transportation, meals, and past, suggesting broader value pressures are simply getting began.

With fuel costs nonetheless elevated, the April CPI is prone to stage one other sizeable improve, and the lagged impression of upper power costs on different items and companies is poised to kick in. Food costs have been unchanged in March, however that won’t repeat in April because the elevated price of transportation and fertilizer is about to feed by way of to the grocery aisles.

Until lately, family buying energy has held up fairly nicely regardless of slowing job and wage progress, as actual earnings continued to extend at a good fee. But the value spike in March marks a dramatic inflection level, because it took a significant chew out of employee paychecks. The annual improve in actual earnings final month plunged from 1.3 % to 0.3 %, which means staff are barely holding abreast of inflation.

What’s extra, the financial savings buffer can also be deflating, as the private financial savings fee slipped from 4.5 % to 4.0 % in February, which is nicely beneath the 6 % common since 2000.

For blue-collar staff, the squeeze on buying energy is even worse, as actual earnings for nonmanagement staff inched up by a mere 0.1 % over the previous yr. True, the income-sapping value spike was closely skewed by the oil surge, whereas most different costs have been unaffected. But it’s essential to keep in mind that power prices take up a bigger share of lower-income budgets than they do of better-paid staff’ budgets, so this cohort was hit the toughest and can face troublesome trade-offs, together with reducing again on discretionary spending.

To be certain, any pullback by lower-income staff may very well be cushioned by wealthier households, who’ve powered a lot of the consumption progress in recent times, due to booming inventory portfolios. But ought to the Mideast disaster – or any unexpected shock – immediate a significant inventory market correction, that wealth impact would evaporate, eradicating a key pillar holding the financial system afloat. So far, the markets have held up moderately nicely, albeit with elevated volatility and a few steep each day losses when issues regarded dire.

As it’s, the buyer was not driving a wave of momentum even earlier than the oil shock hit the headlines. Personal spending progress rose 0.5% in February, or simply 0.1% after adjusting for costs, following a near-stall in January attributable to excessive winter climate. The weaker-than-expected rebound in February spending was notably disappointing because it pre-dates the beginning of the conflict with Iran, elevating the chance that spending in Q2 falls wanting expectations as soon as the hit from increased gasoline costs hits shoppers. Also, there was some tentative proof that upper-income households, who’ve been driving general spending, could also be pulling again a bit as volatility in monetary markets elevated.

Consumer spending was anticipated to achieve some momentum from larger-than-usual tax returns due to provisions in final yr’s fiscal invoice. However, a lot of the rise will now be absorbed by increased fuel costs and different value will increase, negating a lot of the anticipated profit.

Higher inflation and the corresponding impression on actual incomes prompted us to scale back our 2026 Gross Domestic Product progress forecast from 2.8% in the beginning of the yr to 2.4%.

With stress on inflation from increased power costs constructing, the percentages of the Federal Reserve reducing charges quickly have diminished. But indicators of demand destruction have gotten extra seen, which can check the Fed’s endurance the longer the Mideast disaster drags on. Consumer sentiment plunged to an all-time low in early April, and whereas the correlation between sentiment and spending has weakened in recent times, shoppers are already behaving very defensively primarily based on a tangible hit to their buying energy. Assuming the ceasefire holds and results in a sturdy resolution, we consider the Fed will look by way of the oil-induced inflation shock and resume reducing charges later this yr to stop the nascent demand destruction from morphing right into a recession.

Signs of an Upswing in Travel within the First Quarter of 2026

• Air journey, lodge stays, and worldwide arrivals all skilled durations of progress within the first quarter.
• The cruise {industry} continues to develop within the US.
• The impression of the battle in Iran on the journey {industry} continues to be to be decided.

Key journey indicators posted encouraging progress within the first quarter of 2026. TSA checkpoint quantity, a gauge of airline journey primarily based on the variety of passengers screened at TSA safety factors in US airports, rose 1.5% within the first quarter. While checkpoint quantity was basically flat (0.1%) in January, presumably attributable to extreme winter storms in components of the nation, it grew 2.7% in February and 1.7% in March in contrast with the identical month final yr.

Hotel efficiency has adopted the identical sample as TSA checkpoint quantity in the beginning of 2026. Demand was up simply 0.5% in January, however rose 2.9% in February, and preliminary March information counsel one other wholesome acquire is probably going.

Following 9 consecutive months of decline, abroad customer arrivals lastly turned constructive in February. Overseas arrivals rose modestly by 0.8% in February and elevated by a wholesome 3.6% in March. However, these outcomes have been influenced by vacation shifts, because the Lunar New Year fell in February this yr, slightly than January final yr. Additionally, the sooner Easter date, April 5, slightly than April 20 final yr, could have shifted some journey into March.

Although abroad arrivals grew in February and March, a decline in January left whole first-quarter arrivals basically flat in contrast with final yr.

More than half of the 20 largest abroad origins grew within the first quarter of 2026 versus the identical interval final yr. Among the 20 largest origins, Colombia (+31.9%) and Ecuador (+22.2%) posted the strongest year-over-year progress within the first quarter. Arrivals additionally grew from Asian origins, together with Taiwan (+18.6%) and Japan (+6.2%), and from the European nations of Spain (+11.9%) and the United Kingdom (+4.6%). On the opposite hand, arrivals from a number of European nations declined in Q1, together with Germany (-1.9%), France (-8.1%), the Netherlands (-12.9%), and Switzerland (-13.2%). India posted the biggest first-quarter decline (-16.1%) among the many high 20 origins.

Although the expansion in February and March arrivals was encouraging, it represents solely a partial restoration from final yr’s decline in abroad visits. First-quarter abroad arrivals this yr have been 3.3% beneath the identical interval in 2024 and 15% beneath the pre-pandemic benchmark set in 2019. In brief, abroad visits to the US have a protracted strategy to go to get well final yr’s declines and face a fair longer highway again to pre-pandemic ranges.

While abroad arrivals posted positive factors in February and March, the sample of steep declines in arrivals from Canada continued within the first quarter of 2026. After dropping 25% final yr, Canadian arrivals to the US have been down practically 15% within the first quarter of 2026.

On a constructive observe, the US is well-positioned to profit from ongoing progress within the cruise {industry}. US ports are the first beneficiaries of the cruise {industry}’s growth, with passenger capability deployed to US ports projected to extend by greater than 8% in 2026, in comparison with 4% globally.

Miami stands out as a key beneficiary, pushed by a better frequency of shorter itineraries, whereas Los Angeles is benefiting from elevated cruise deployment within the area.

It is just too early to evaluate the impression of the Iranian battle on the journey {industry}. Historically, the {industry} has noticed that increased fuel costs don’t trigger a major downturn in journey. An improve in fuel costs represents a comparatively small share of the general price of a visit, together with lodging, meals, leisure, and so forth. Rather than not touring in any respect, vacationers have tended to offset increased fuel costs by way of diminished spending in different components of their journey price range.

However, there’s a motive to query if this time can be totally different. Consumers stay fairly delicate to increased costs after years of elevated inflation, relationship again to the post-pandemic peak of 9% inflation in mid-2022. Household budgets for a lot of middle- and lower-income households stay strained, reflecting what’s come to be often known as the bifurcated, or “K-shaped,” financial system. An inflationary surge pushed by increased fuel and power costs may very well be sufficient to push these vacationers to the sidelines.

The journey {industry} can also be watching to see what impression, if any, the battle in Iran has on outbound journey by US residents. A downturn in US outbound journeys could be notable after a number of years of record-setting worldwide journey by US residents. International journey by US residents rose 2.7% in 2025 regardless of tariffs, commerce insurance policies, and damaging rhetoric by the Trump Administration that weakened worldwide sentiment in direction of the US

The surge in US outbound journeys for the reason that pandemic, coupled with the gradual return of worldwide arrivals to the US and, in 2025, the additional decline in worldwide arrivals, has been a contributing issue to very weak progress in US lodge demand in recent times. Outbound journey by US residents in 2025 was 10% increased than in 2019, and abroad journeys (excluding to Canada and Mexico) have been 25% increased than in 2019. In distinction, worldwide guests to the US stay about 10% beneath the 2019 pre-pandemic benchmark.

A downturn in US outbound journeys might mirror a shift in journey patterns in direction of home locations, which might profit the home journey {industry}, together with resorts and short-term leases. Significant occasions, together with the FIFA World Cup, America 250 celebrations, and the 100^th anniversary of Route 66, may contribute to a shift in direction of home journey this yr.

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The Quarterly Economy & Travel Industry Summary companions with Tourism Economics, an Oxford Economics firm. Combining rigorous financial evaluation with a long time of journey {industry} experience, Tourism Economics is an industry-leading supply of insights. Learn extra at www.tourismeconomics.com.