Airline Stocks Feel the Pressure as Airfares Fall 7% in May

Business Insider

a day ago

U.S. travelers saw some welcome relief on airfares this spring. Indeed, according to the latest Consumer Price Index report, airline ticket prices decreased by 7.3% in May compared to the same month a year ago, following a 7.9% drop in April. However, this price drop comes at a time of growing uncertainty around how President Trump's tariff policy might impact consumer demand and the broader economy. It is no secret that major airlines have been feeling the pressure.
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Earlier this year, Delta (DAL) and American Airlines (AAL) withdrew their full-year revenue and earnings outlooks, thanks to weak demand in the budget-friendly main cabin and tariff-related challenges. In addition, United (UAL) issued two possible forecasts due to economic uncertainty, while Southwest Airlines (LUV) opted not to update its guidance for 2025 and 2026. 'We were highly impacted on the demand side by the tariffs and the erosion of consumer confidence,' Southwest CEO Bob Jordan said in April.
Looking ahead, the International Air Transport Association expects air passenger growth to slow to 5.8% in 2025, down from 10.6% in 2024 as a result of U.S. trade policy and a cooling global economy. Travel trends are also shifting, with fewer foreign tourists visiting the U.S. Last month. This has led airlines to scale back on U.S.-Canada flights while adding more premium seats to offset the lower demand in economy class. Interestingly, aviation consultant Mike Boyd warns that budget airlines could be hit hardest as overall demand and prices fall.
Which Airline Stock Is the Better Buy?
Turning to Wall Street, out of the stocks mentioned above, analysts think that UAL stock has the most room to run. In fact, UAL's average price target of $98.71 per share implies more than 26% upside potential. On the other hand, analysts expect the least from LUV stock, as its average price target of $31.38 equates to a loss of 5.9%.