Why Are Airline and Cruise Line Stocks Getting Crushed by Tariffs?

The stock market was experiencing its biggest one-day declines in several years on Thursday in the wake of President Trump's tariff announcements. Not only will the tariffs affect over 180 countries around the world, but for the most part, they were also far worse than experts had anticipated.

As a result, the S&P 500 was lower by 4.3% as of 2:30 p.m. ET today. The tech-heavy Nasdaq was down 5.5%, and the small-cap Russell 2000 index fell by 6% and is now in bear market territory because it is over 20% below its previous high.

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Some sectors of the stock market were performing even worse, and one was travel stocks. Southwest Airlines (NYSE: LUV) had fallen by 9% on the tariff news, just to name one example of an airline stock being beaten down. And cruise operators were hit even harder, with industry leaders Royal Caribbean (NYSE: RCL) and Carnival Corporation (NYSE: CCL) down by 9.3% and 12.2%, respectively.

Why are travel stocks down?

Generally speaking, the tariffs are expected to raise the prices of many goods and services for Americans at a time when people are feeling squeezed by the inflation of the past few years. And the general uncertainty in the economy has caused consumer confidence to decline.

As a result, many investors are justifiably worried that people might pump the brakes on discretionary spending, meaning that they'll cut back on things they don't need. Air travel sometimes falls into this category, and cruises almost always do.

We could also see business travel take a hit. Think of it this way: If the tariffs force companies to move more of their operations into the U.S., there will be less of a need for business travelers to fly internationally.

Should you avoid airline and cruise stocks for now?

If you already own shares of these or other airline and cruise stocks, there's no need to panic and sell. First, nobody knows exactly what the impact of the tariffs will be on inflation, and what any hypothetical inflation could do to consumer spending habits. Many experts thought consumer spending would slow down sharply after inflation spiked to a 40-year high in 2022, but it didn't really happen.

Second, keep in mind that this is a very fluid situation. There's no way to know how long the tariffs will remain in place, and it's entirely possible that many of them will ultimately be negotiated lower.

Having said that, it could be smart to be cautious about investing new money in these industries until the dust settles. And if you do, make sure you have a long time horizon to ride out the roller coaster that is likely while the situation plays out.

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Matt Frankel has no position in any of the stocks mentioned. The Motley Fool recommends Carnival Corp. and Southwest Airlines. The Motley Fool has a disclosure policy.