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– Image Credit Delta Airlines
U.S. airlines, including Delta, American, and United, have lowered their earnings estimates due to growing economic uncertainty and reduced spending, which have decreased travel demand.
Amid escalating economic uncertainty, several major U.S. airlines adjusted their earnings forecasts downward on Tuesday. This follows Delta Air Lines’ similar revision, as both corporate and consumer spending exhibit signs of a pullback. The airlines also anticipate that this economic pressure will necessitate a further reduction in industry capacity post the summer travel peak to avoid potential discounting pressure.
Consumer and business confidence in the U.S. has been shaken by President Donald Trump’s imposition of tariffs and the threat of further levies, leading to heightened concerns about price increases. The Atlanta Federal Reserve’s GDPNow tracker suggests that the economy could contract during the year’s first quarter.
This downturn in economic activity directly impacts travel spending, spelling potential trouble for the airline industry. Since Trump’s administration resumed office, revenue from government contracts for these carriers has already been affected by a federal spending crackdown. “Economic uncertainty is a big deal,” said American Airlines CEO Robert Isom at a JPMorgan industry conference. Both Isom and Delta CEO Ed Bastian cited recent air crashes and weather events as additional contributors to the dip in travel demand.
American Airlines forecasted a wider first-quarter loss due to a significant revenue slowdown. Southwest Airlines similarly reduced its first-quarter revenue forecast, attributing the decrease to less government travel and the extensive impact of the California wildfires. United Airlines anticipates its first-quarter earnings to be at the lower end of its forecast due to a 50% drop in government-related travel bookings. It says that reduced government spending is also affecting the domestic leisure market. Delta Air Lines cut its first-quarter profit estimates by half, citing a softening in domestic travel demand.
These adjustments mark a drastic shift from a month ago, when limited industry-wide capacity and robust consumer demand strengthened airlines’ pricing power, raising the prospect of a multi-year profit boom. However, concerns about travel spending have since led to a selloff in airline stocks.
Airlines reported that bookings for premium and long-haul international travel remain steady and that falling fuel prices could potentially offset the slowing demand. Despite this, airlines are implementing additional measures to safeguard their margins. Delta has altered its booking strategy; American has revised its capacity in the Washington area due to weakness in government-related bookings; United has cut capacity in government and transborder markets and plans to retire 21 aircraft ahead of schedule to save on maintenance costs. United CEO Scott Kirby noted that the industry is adapting to focus on their comparative advantage, a strategy they plan to accelerate as they navigate the rough economic times ahead.
Discover more at Reuters.
