UAL, DAL, ULCC - Get Out of Airline Stocks !
Overview and Challenges
Less than 2 months ago, US airlines were optimistic about a potential multi-year profit boom due to strong travel demand and limited industry-wide capacity.
Thanks to President Trump's broad tariffs and violet crackdown on government spending, have upended that optimism.
This has caused both tourists and businesses to cut back on travel expenses.
Airlines reacted also, by lowering their Q1 2025 profit forecasts.
Economic Pressures and Travel Demand
Travel, a discretionary expense, is highly sensitive to economic conditions.
Concerns about slow economic growth and high inflation have dampened the industry's outlook for 2025.
Just this March 2025, US consumer confidence fell to its lowest level in over 4 years, with future expectations for income and business conditions reaching a 12-year low, according to a Conference Board survey.
Air ticket sales through US travel agencies dropped by -8% in February 2025, after a +39% surge in January, highlighting weakening demand.
Passenger traffic growth has slowed significantly, with annual growth dropping to 0.7% in March from 5% in January, as reported by the Transportation Security Administration.
This decline has hurt airlines' pricing power; fares recorded their first year-on-year decrease in 6 months in February, according to US Labor Department CPI data.
As of 01 Apr 2025
Market Performance
The S&P 500 passenger airlines index has declined by about -23.18% YTD, underperforming the broader S&P 500 index (-4.01% YTD).
Shares of :
As of 01 Apr 2025
As of 01 Apr 2025
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$Delta Air Lines(DAL)$ and $United Continental(UAL)$ have fallen more than -28% YTD as well. (see above)
As of 01 Apr 2025
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$Frontier Group Holdings, Inc.(ULCC)$ (Discounter Frontier Airlines) is down -40.25% YTD. (see below)
With demand slowing, airlines have started cutting flights to avoid lowering fares and to protect margins.
US carriers - Frontier, Delta, United, American Airlines, JetBlue, and Allegiant - all trimmed their April-June quarter capacity in the past 2 weeks.
Safety Concerns Impacting Demand
There was another alibi that safety incidents have also contributed to reduced travel demand.
Amanda Demanda Law Group reported that airplane safety concerns reached an all-time high in February, with Google searches for "Are planes safe now?" increasing by 900%.
Airlines (optimistically) believe the impact of these safety concerns will soon diminish.
However, they remain uncertain about US economic challenges that continue to affect consumer behavior and industry growth.
Corporate and Leisure Travel Trends
Corporate bookings growth has slowed significantly.
Delta (DAL) reported single-digit growth in corporate bookings after a +10% YoY increase in January.
United (UAL) noted that government-related travel bookings halved due to reduced government spending, which has also impacted domestic tourism.
Corporate travel agency Altour observed up to a -10% decline in bookings from industries like financial services and manufacturing.
Leisure travelers are also becoming more cautious due to inflationary pressures.
Credit and debit card spending on airlines fell by -7.2% in February compared to the previous month, marking the weakest performance in 6 months, according to Bank of America data.
Outlook for Summer Travel
Airlines are still maintaining full-year earnings estimates but warn that prolonged weak demand could impact summer profits, typically the industry's most lucrative season.
Frontier airline CEO Barry Biffle emphasized that leisure travel depends heavily on labour market strength, noting that as long as employment remains stable, leisure customers may continue traveling cautiously.
Do you foresee impending CPI inflation coming in “better” than Fri, 28 Mar 2025 core PCE inflation that rose by +1.0% to 2.8% and resulted in US market crashing ? Guessed not !
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Do you think US economy & inflation will get progressively worse heading into Summer 2025 ?
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Do you think it is time to sell Airline stocks before it’s too late OR buy the dip on each decline ?
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