The ongoing conflict in the Middle East is significantly impacting the European tourism sector, leading to a decline in tourist spending. Burberry reported a 3% fall in sales in its Europe and Middle East region, primarily due to fewer tourists visiting Middle Eastern shopping hubs like Dubai and fewer Asian shoppers in Europe. Burberry's CFO Kate Ferry noted that American tourist spending was strong and helping to cushion the blow in other regions. CEO Joshua Schulman highlighted a 50% decline in Burberry's London tourist business since 2019, attributing it largely to the abolition of tax-free shopping for tourists, while Paris saw a 30% increase in its tourist business.
In contrast to the struggles in Europe and the Middle East, Burberry experienced strong growth in the U.S. and China. Sales in the Americas were up 12% year-over-year, driven by new customers and a successful strategy. China sales increased by 9%, boosted by Gen Z shoppers. Schulman emphasized a focus on these "must-win" markets, indicating that investments in the U.S. market were creating a "halo effect" in Europe due to the strong presence of American customers. Despite the Middle East only accounting for 2% of Burberry's sales, the escalating conflict, including Iran's strikes on U.S. military bases, caused a broad decline in luxury stocks.
The broader travel industry shows a mixed picture. Strong U.S. leisure and business travel, along with a boost from the World Cup, helped offset disruptions from the Middle East conflict. Luxury and higher-value travel segments proved resilient, leading to upgraded forecasts for some hotel operators. Hilton Worldwide Holdings, for example, raised its full-year forecast for room revenue growth, citing robust demand at its luxury properties, even as its Middle East and Africa region saw a 29.5% drop in room revenue. Airlines faced significant fuel cost pressures, with JetBlue's fuel bill climbing nearly 81%, or approximately $407 million, although stronger demand and higher ticket prices helped to recover some of these costs.
Cruise lines like Royal Caribbean also felt the impact of geopolitical tensions, trimming their revenue growth outlook and reporting a 27% increase in quarterly fuel expenses to $355 million. However, they still managed to raise annual profit forecasts. Hotel magnate Sir Rocco Forte, whose company Rocco Forte Hotels is partly owned by Saudi Arabia's Public Investment Fund, expressed optimism about the Middle East's long-term tourism potential. He suggested that if the U.S. and Israel could effectively counter the Iranian regime, the region could see increased tourism volumes and significant investment in marketing once tensions subside. Analysis by Oxford Economics estimated that a "protracted conflict scenario" could lead to a loss of approximately 38 million international visitors in 2026, equating to a $56 billion hit to the region's tourism sector.
