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Airlines and casinos stand to take a hit from China's warning against traveling to the US

Key Points
  • While Chinese tourism is massive, it takes up only 3% of the $1.1 trillion U.S. travel market.
  • In a worst-case scenario, the number of Chinese tourists to the U.S. could drop by nearly 50%, resulting in an $18 billion hit to travel spending, Bank of America estimates.
  • Legacy companies that offer flights to China could see a negative impact, including United Continental, Delta Air Lines and American Airlines.
  • The casinos in Las Vegas are already feeling the pinch.
The U.S. flag flies at a welcoming ceremony between Chinese President Xi Jinping and U.S. President Donald Trump in 2017.
Getty Images News | Getty Images

China's warning about traveling in U.S. — the latest shot amid the worsening trade war — could pose a threat to some airlines and casinos, although the overall impact on U.S. tourism would be manageable.

While Chinese tourists spend heavily around the world, contributing to $270 billion abroad last year alone, they only accounted for 3% of the $1.1 trillion U.S. travel market in 2018, according to the U.S. Travel Association. In a worst-case scenario, the number of Chinese tourists to the U.S. could drop by nearly 50%, resulting in an $18 billion hit to travel spending, Bank of America Merrill Lynch estimated.

"Chinese tourism is a big prize in global trade. ... On this front, the U.S. has more to lose than China," Robin Winkler, foreign exchange strategist at Deutsche Bank, said in a note. The trade war "would likely take a severe dent to household income growth to squash the new middle class's appetite for passports and foreign travel. A weaker exchange rate could make foreign travel somewhat less affordable," Winkler added.

Chinese travel to the U.S. has already declined by 5.7% in 2018 from a year earlier, compared with a 4% gain in 2017 and a 15% increase in 2016, according to the U.S. Travel Association. The number is only going lower after the Chinese government issued an alert for Chinese tourists traveling to America, citing "shootings, robberies and theft" that have occurred "frequently" in the U.S.

U.S. airlines

Since only legacy airline companies offer flights to China, the negative impact from declining Chinese tourists would fall mostly on United Continental, Delta Air Lines and American Airlines, according to Bank of America.

United carries the most flights to China with 47% of U.S. airline capacity, compared with about 25% for American Airlines and Delta, Bank of America analyst Andrew Didora said.

In the bank's worst-case scenario — a 50% drop in Chinese tourists — United's unit revenues could see a 140 basis-point drag and the impact would be 70 basis points for American Airlines and Delta, Didora said.

Las Vegas

Chinese travelers, who are big customers for casinos, might now turn their backs on gaming in the U.S. amid the travel advisory and intensified trade tensions. The casinos in Las Vegas are already feeling the pinch.

"Las Vegas has already noted weaker Asian gambling trends. Baccarat gross gaming revenues are often a barometer for the health of the Asian consumer and are down 26% [year to date]," Didora said.

The weakness could weigh on casinos including MGM, Las Vegas Sands and Wynn Resorts that have an exposure to baccarat, the analyst noted.

Luxury retailers could also take a hit. Tiffany & Co. on Wednesday blamed disappointing quarterly results on a sharp decline in Chinese tourism because of the trade war.