Airlines Slash First-Quarter Estimates as Demand Dips
A Delta Airlines and American Airlines plane are seen at Ronald Reagan Washington National Airport in Arlington, Virginia, on July 1, 2023. Stefani Reynolds | AFP | Getty Images
Overview of Recent Market Trends
Major airlines are revising their profit and sales forecasts for the first quarter of the year, attributing the downgrades to a sluggish economic climate that is dampening travel demand.
American Airlines’ Forecast
On Tuesday, American Airlines announced that it expects a loss between 60 cents to 80 cents per share for the first quarter, a significant increase from its previous estimate of a loss between 20 cents and 40 cents per share. The airline also indicated that revenue growth is anticipated to stagnate, contrasting with a prior expectation of up to 5% growth.
In a recent securities filing, American Airlines noted that economic conditions have deteriorated more than expected, linked to the fallout from a tragic accident involving one of its regional jets and a military helicopter, as well as reduced demand in the domestic leisure market.
Delta Air Lines Adjusts Projections
Following American Airlines, Delta Air Lines also cut its first-quarter estimates, citing a noticeable decrease in consumer and corporate confidence as a primary factor impacting domestic demand.
CEO Ed Bastian remarked on the current cautious sentiment among potential travelers, who are awaiting clarity on issues such as trade, tariffs, and broader economic policies.
Insights from United Airlines
At the same industry conference, United Airlines CEO Scott Kirby confirmed a similar trend of declining demand. He observed that government-related travel, which constitutes about 2% of United’s revenues, has been affected, alongside travel from consultants and contractors.
In response to these changing dynamics, United Airlines plans to retire 21 aircraft ahead of schedule to avoid incurring hefty maintenance costs.
Financial Market Reactions
The announcement from both airlines negatively impacted their stock prices, with Delta shares falling over 7%, American Airlines dropping more than 8%, and United Airlines declining by approximately 2%.
Southwest Airlines Adjustments
Southwest Airlines also revised its revenue guidance for the first quarter, now expecting an increase of no more than 4%, down from an earlier estimate of up to 7%. Additionally, the airline will implement changes to its luggage policy, introducing fees for checked bags starting in May, leading to a more than 8% increase in its stock price.
