Airlines Face Murky Outlook Ahead of Earnings Season
Despite experiencing record summer holiday travel, the outlook for the airline industry is still murky, as economic uncertainty continues to weigh down on consumers.
With Delta Air Lines expected to report second quarter earnings early Thursday, Wall Street analysts are widely expecting airlines to report stable demand, however that demand will be down from previous projections for the year.
'We believe US airline shares will be biased downward over the near-term due to persistent pricing weakness,' TD Cowen analyst Tom Fitzgerald wrote in an investor note on July 2. 'We do not expect them to catch a bid until there's greater clarity on consumer demand and 2026 industry pricing. This year increasingly looks like a lost year.'
Southwest CEO Bob Jordan noted in an interview with The New York Times that airlines were already starting to sell discounted summer fares, something which he said is unusual for the industry during a high demand season.
'People are waiting to make decisions,' Jordan said. 'This is a generality, but the summer would never be on sale like it is today.' He added: 'You see weakness all over the place.'
In response to growing uncertainty, multiple airlines, including Delta, American Airlines, Southwest Airlines, and Alaska Airlines pulled their 2025 outlooks. Jordan had also previously said that the industry was already in a recession.
'While the broader macro environment has been more resilient than feared, overall airline industry demand has looked tepid,' Fitzgerald said in the note.
Airlines May Make More Capacity Cuts
Melius Research analyst Conor Cunningham said in a note on Monday that second-quarter results would be 'largely in line with expectations, but far from memorable.'
'The booking curve remains compressed as consumers remain hesitant on booking further out,' Cunningham said.
During the first quarter, airlines said they would cut capacity and underperforming routes to better match consumer demand. However, for June and July, historically some of the busiest months in the industry, airlines did not scale back capacity enough, Cunningham said.
'Back in Apr. / 1Q25 earnings, the industry vowed to reduce supply after July if demand did not improve,' Cunningham said in the note. 'Fast forward to today, that theme is largely playing out and now they need to double down, if not triple down, on supply discipline.'
Is International Travel Still a Bright Spot?
So far, international travel has been a bright spot for airlines. Both Delta and United Airlines found during the first quarter that high demand for international travel had offset the softness in domestic travel demand.
United said in a Fourth of July forecast that it was still seeing strong international demand, with bookings up 5% this summer compared to last year.
However, Cunningham cautioned that international travel could be less resilient in the future due to a weakening U.S. dollar.
Deutsche Bank said in a note in April that it was forecasting a 'mild' recessionary outlook for the U.S. airline industry during the second half of 2025.
Airlines are still going full steam with plans to expand their international and premium offerings. United recently operated its first flight to Greenland and announced that it would refresh its cabins for international flights, introducing a premium business cabin. American also unveiled its new premium Flagship Suite that will be on Boeing 787s.
What am I looking at? The performance of airline sector stocks within the ST200. The index includes companies publicly traded across global markets including network carriers, low-cost carriers, and other related companies.
The Skift Travel 200 (ST200) combines the financial performance of nearly 200 travel companies worth more than a trillion dollars into a single number. See more airlines sector financial performance.
Read the full methodology behind the Skift Travel 200.
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