Airline Earnings At Risk As Demand Dips Amid Weak Business Travel, Low Transborder Traffic, DOGE Cuts: Analyst Says

Demand in the airline sector weakened throughout the first quarter, with expectations of a tough earnings season featuring lower second-quarter forecasts and reduced 2025 earnings guidance.

Airline stocks are down 24% year-to-date, and BofA Securities analyst Andrew G. Didora notes that demand recovery hinges on achieving macroeconomic stability.

The positive outlook for the airline industry in 2024 was initially based on steady demand, but that has shifted since early February due to factors like macro uncertainty, cuts in DOGE, weaker consumer confidence, poor transborder traffic, stagnating business travel, and slowing transatlantic demand, the analyst writes.

Per Didora, the upcoming first quarter of 2025 earnings season is expected to show weak second-quarter forecasts and lowered 2025 earnings guidance, with analysts adjusting their estimates and price targets.

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Due to weakening demand and pricing in 1Q25, the airline industry is expected to finish March with pricing at its lowest levels in several quarters.

Airlines need macroeconomic stability for demand to recover and reverse the 24% decline in stock prices year-to-date, the analyst notes.

Here are Didora’s key takeaways in some of the biggest players in the space:

• The analyst reiterated the Buy rating on Delta Air Lines, Inc. DAL, lowering the price forecast from $65 to $56.
• Didora maintained the Buy rating on United Airlines Holdings, Inc.UAL, reducing the price forecast from $110 to $100.
• The analyst reiterated the Neutral rating on American Airlines Group, Inc. AAL, lowering the price forecast from $16 to $12.

The analyst observes that, based on Bank of America’s aggregated credit and debit card data, spending slowed by 400bps from January to February, and March remained at February’s levels.

The analyst anticipates that 2025 earnings per share (EPS) forecasts will be at risk, with new projections showing that all airlines are likely to fall short of their full-year earnings targets.

With this trend, Delta Air Lines’ revised 1Q25 unit revenue outlook of -1% suggests March unit revenues could be down 5%, with a forecast of low single-digit declines in 2Q25, assuming a 200bps improvement in April due to the Easter shift.

Specifically, the analyst’s revised forecasts for Delta and United Airlines are nearly 10% below consensus, at $6.40 and $11.35, respectively.

The analyst observes that while domestic supply has been slow to leave the market, May growth is the lowest in 1H25, aside from January.

Didora projects domestic growth to decrease into 3Q25 as airlines adjust supply to match new demand levels.

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