By Sabrina Escobar

Although Congress could finalize a deal to reopen the federal government this week, the U.S. travel industry will be dealing with the repercussions of the longest shutdown on record well into the peak holiday season.

And it isn't just airlines that will be affected -- hotels, rental car services, and even some cruise lines are telling investors that fourth-quarter results may be skewed by the 40-plus days that the federal government has been closed down.

Last week, the Federal Aviation Administration ordered a temporary reduction in flights at 40 high-traffic airports across the U.S. to alleviate shutdown-related strains on the system. Air-traffic controllers have been working without pay throughout the shutdown, and as missed paychecks pile up, many have quit, retired, or called out sick, resulting in nationwide shortages and flight delays.

The FAA initially cut planned flights by about 4% last Friday. It aims to ramp up to 10% fewer flights by the end of this week. Most airlines have trimmed their domestic travel routes while keeping international and long-haul flights intact.

It is unclear whether the FAA will reverse its decision even though a reopening deal could pass the House of Representatives as soon as Wednesday, after clearing the Senate on Monday. Transportation Secretary Sean Duffy has said while air-traffic controllers could receive back pay as soon as 48 hours after the shutdown ends, it is unlikely that normal flight patterns would be immediately reinstated.

"Even if a deal to reopen the government is reached quickly, it remains unclear whether capacity restrictions would be lifted by Thanksgiving, given potential lags in paying air-traffic controllers and the FAA's requirement of a return to normal staffing levels before lifting restrictions," a team of researchers at Fitch Ratings wrote recently.

Indeed, Airlines for America, a trade group representing most major airlines, said the reduced flight schedules "cannot immediately bounce back to full capacity right after the government reopens."

The group estimates that when the FAA's flight-reduction order reaches 10% this Friday, it could result in a daily average impact of between $285 million to $580 million to the U.S. economy, depending on the extent to which airlines can reaccommodate passengers.

The airlines themselves could also be negatively affected if flight schedules don't go back to normal soon.

"The flight reductions are unequivocally disruptive (and unit cost accretive), and, in our estimation, will represent a drag on margins," wrote Michael Linenberg, an analyst at Deutsche Bank. "The current 'shoulder' demand period should soften the blow of the flight cuts. If the reductions were to continue through the Thanksgiving holiday travel period, we believe that the financial impact would be significant, particularly for some of the weakest carriers."

Other companies catering to travelers have voiced concerns about how fewer flights could have knock-on effects for them, as well. Mark Hoplamazian, CEO of Hyatt Hotels, said in a Nov. 6 earnings call that a reduction in air travel "by definition" means there are fewer people flying and thus needing to stay at a hotel.

"I think there's a potential risk here because again, it would be naive to say, no, there won't be any risk whatsoever when something like 10% of the capacity is coming out of the system," he said.

Meanwhile, Hertz executives said they expected some softness in demand in the remaining months of the fourth quarter, driven by a decline in leisure travel combined with the shutdown. The company's business that caters to government employees also came down significantly in November -- a comment echoed by rival Avis and executives at Marriott International and American Airlines.

Since the shutdown began on Oct. 1, the U.S. Global Jets ETF -- comprised of major airlines -- is up 2%. The AdvisorShares Hotel ETF is down 2.2%, and the S&P 500 has gained 1.6%

The silver lining is that analysts and companies expect the travel snarls to be temporary, and demand will rebound as the government reopens.

"The softness in the remaining months of the quarter seem to potentially be government-shutdown-related and are likely transitory," said Scott Haralson, Hertz's chief financial officer, on the company's Nov. 4 earnings call. He added that Hertz expects peak travel periods -- including Thanksgiving, Christmas, and New Year's Eve -- will perform well.

Indeed, many analysts are upbeat about travel prospects in 2026. A Morgan Stanley survey of firms that negotiate corporate travel found that budgets for the new year were up 5% on average from 2025.

The outlook for leisure travel is a bit murkier, as it hinges on the resilience of the U.S. economy and consumer spending into the new year -- a hotly debated topic up and down Wall Street. Citi analyst Leo Carrington posits that higher-income households will continue to spend on vacations despite macroeconomic uncertainty, while lower-income households may pull back.

Write to Sabrina Escobar at sabrina.escobar@barrons.com

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November 12, 2025 03:00 ET (08:00 GMT)

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