Airline Stocks Slide Amid Travel Demand Worries

Airline stocks have taken a noticeable hit as concerns about weakening travel demand and a decline in consumer confidence continue to cast a shadow over the sector. On Tuesday, shares of major U.S. carriers trended downward as market sentiment turned cautious amid forecasts of softer demand. Jefferies, a prominent investment bank, downgraded several key players in the industry, including Delta Air Lines, American Airlines, Air Canada, and Southwest Airlines, reflecting growing worries about the economic outlook for travel.

Shares of Delta, long considered the most profitable U.S. carrier, fell more than 2% in trading following the downgrade. Jefferies reduced Delta’s rating from buy to hold and nearly halved its price target to $46, citing concerns that the carrier’s 2025 forecasts might be scaled back. This move comes on the heels of Delta cutting its first-quarter guidance, as the bank noted that the airline’s future performance could be hampered by a shift in traveler behavior, particularly among more price-sensitive passengers. Despite these challenges, Delta executives have pointed to growing revenue from higher-end cabins, such as first class, and a lucrative credit card partnership with American Express as potential buffers against the broader market slowdown. Delta is set to kick off the U.S. airlines’ earnings season when it reports its results next Wednesday morning.

In addition to Delta, Jefferies also downgraded American Airlines, which saw its shares drop by about 2%, and Southwest Airlines, whose stock tumbled by more than 5%. Air Canada, another carrier with significant exposure to cross-border travel with the U.S., was similarly downgraded, adding to the list of airlines facing a challenging outlook. United Airlines stands out as the only U.S. carrier remaining on Jefferies’ buy list, although even its price target has been slashed by 48%, underscoring the pervasive uncertainty affecting the entire industry.

Concerns about travel demand were echoed by airline executives during a JPMorgan industry conference held in mid-March, where softer-than-expected demand for domestic travel was highlighted as a key issue. Domestic travel, which makes up the bulk of revenue for many U.S. carriers, has been under particular pressure. A report by Bank of America indicated that while overall U.S. household credit and debit card spending increased by 1.5% compared to last year as of March 22, spending on airlines fell by 7.2%. The decline in travel-related spending, the report suggested, might be attributed to a combination of factors including a drop in consumer confidence, hesitancy to book trips, as well as external factors like bad weather and a late Easter this year.

The downturn in the sector is further reflected by the performance of the NYSE Arca Airline Index, which tracks the stocks of major U.S. carriers. The index fell 18% in the first quarter, outpacing the broader decline of the S&P 500 and marking the largest percentage drop in the airline sector since the third quarter of 2023. This steep decline underscores the significant headwinds faced by airlines as they navigate a challenging economic environment characterized by tariff uncertainties and shifting consumer preferences.

As the industry braces for potentially lower demand in 2025, the recent downgrades and falling stock prices serve as a stark reminder of the volatile nature of the travel market. With airlines now facing increased pressure to adjust their forecasts and strategies, investors and travelers alike are watching closely to see how carriers will adapt to these changing conditions in the months ahead.

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Sources: AirGuide Business airguide.info, bing.com, cnbc.com