Airlines Adjust Profit Estimates Amid Economic Uncertainty
As the economic landscape shifts, major airlines have started to revise their profit and revenue forecasts for the first quarter of the year, attributing these changes to waning travel demand.
American Airlines’ Forecast Revision
American Airlines reported on Tuesday that it anticipates a loss of between 60 cents to 80 cents per share in the initial three months of the year. This projection is notably more pessimistic than its earlier forecast, which anticipated a loss of only 20 to 40 cents per share. The airline expects revenues to remain flat compared to previous year estimates, a significant downgrade from earlier expectations of up to a 5% increase.
In a recent securities filing, American stated, “the revenue environment has been weaker than initially expected due to the impact of Flight 5342 and softness in the domestic leisure segment, primarily in March,” referring to the aftermath of a tragic incident involving one of its regional jets in January.
Delta Air Lines Adjusts Its Outlook
Following American Airlines, Delta Air Lines also lowered its first-quarter estimates. The airline cited “recent reduction in consumer and corporate confidence caused by increased macro uncertainty” as a primary factor for the decline in demand, particularly within the domestic market.
CEO Ed Bastian highlighted consumer hesitance regarding travel decisions amidst ongoing uncertainty in economic policies, stating, “I think people are cautious and they’re pulling back a little bit on travel.” He suggested that various external factors, including trade challenges and economic policy shifts, have contributed to this behavior.
Trends in the Airline Industry
United Airlines, too, has noted a dip in travel demand, particularly in government and corporate travel sectors, which directly impacts its overall business. CEO Scott Kirby remarked, “We’ve seen some bleed over into the domestic leisure market.” Additionally, United has taken steps to mitigate costs by retiring 21 aircraft earlier than planned, avoiding significant maintenance expenses.
Southwest Airlines and Market Reactions
Southwest Airlines has revised its unit revenue guidance, now projecting a rise of no more than 4%, down from its earlier estimate of up to 7%. In a significant shift, the airline also announced the end of its “two bags fly free” policy, set to begin in May, marking the first time it will charge for checked luggage. This announcement positively impacted its stock, which rose over 8%.
Market Impact and Future Outlook
As the airline sector grapples with these challenges, stock prices reflected the market’s response to the revised forecasts. Delta’s shares fell by over 7%, American Airlines lost more than 8%, while United experienced a 2% decline. In contrast, JetBlue Airways saw a 4% increase in its share price following similar adjustments.
Despite the current climate, executives from major carriers maintained an optimistic outlook on long-term trends, particularly regarding long-haul international travel and premium market segments, which continue to show promise.
