By Rajesh Kumar Singh and Shivansh Tiwary
(Reuters) -More U.S. airlines cut their earnings estimates on Tuesday, following a similar announcement from Delta Air Lines, saying mounting economic uncertainty has led to a pullback in corporate and consumer spending.
They also warned that near-term economic pressures would prompt the industry to further reduce capacity after the summer travel peak to prevent any discounting pressure.
U.S. consumer and business confidence has weakened over the fallout from tariffs imposed by President Donald Trump and threats of additional levies, and increasing concerns about higher prices. The Atlanta Federal Reserve’s closely followed GDPNow tracker suggests the economy could shrink in the first three months of the year.
Since travel spending closely tracks broader economic activity, investors and analysts say a downturn would spell trouble for the airline industry. Carriers’ revenue from government has already taken a hit due to a crackdown on federal spending since Trump’s return to the White House.
“Economic uncertainty is a big deal,” American Airlines CEO Robert Isom said at a JPMorgan industry conference.
Isom and Delta CEO Ed Bastian also mentioned recent air crashes and weather events as contributing factors in dampening travel demand.
On Tuesday, American forecast a wider first-quarter loss due to a sharp slowdown in revenue. Southwest Airlines also cut its revenue forecast for the first quarter, citing less government travel and a greater impact from the California wildfires.
United Airlines said its first-quarter earnings are now expected to come in at the lower end of its forecast due to a 50% drop in government-related travel bookings. The airline said reduced government spending was also having a ripple effect on the domestic leisure market.
On Monday, Delta slashed its first-quarter profit estimates by half, saying domestic travel demand has softened.
The cuts mark a sharp contrast from a month ago, when limited industry-wide capacity and strong consumer demand had bolstered airlines’ pricing power, raising the prospect of a multi-year profit boom.
MARKET ROUT
Worries about travel spending have since routed airline stocks and the selloff accelerated on Tuesday.
Delta’s shares, which have declined 29% in the last month, were down another 8% in midday trade. United’s shares, which have lost 28% in value since February 10, fell 5%, while American was off 6%.
Southwest shares defied the trend and were up 7% after the company scrapped its hallmark free checked bag policy in a bid to boost revenue.
