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Takeaways
- Southwest, American, and Alaska are the latest airlines to express caution regarding the rest of the year due to a declining demand for domestic flights.
- Domestic sales have stalled as consumers grow uneasy about tariffs, according to executives such as Southwest CEO Bob Jordan, who called the drop-off one of the worst he's seen.
- Executives have said that premium and international tickets, purchased more by the wealthy, have performed well.
The skies aren't looking so friendly these days.
Southwest, American and Alaska are the latest airlines to express caution over the rest of the year due to a declining demand for domestic flights.
Southwest Airlines’ (LUV) Bob Jordan said on Thursday that the drop in business in February was among the most dramatic he has ever seen. “That’s a very rapid drop-off,” he told CNBC. “It’s the most I’ve seen without COVID.”
Jordan said that the carrier believes that economic unease has had a greater impact on sales than Southwest’s plans for a baggage fee or to assign customers seats.
“I think a lot of that is the consumer reaction to tariffs,” he told CNBC. “Some of it could be the consumer front-running the Tariffs in terms spending money elsewhere. So it could snap.
American adjusted its full-year outlook, joining other carriers—including United (UAL) and Delta (DAL)—in making similar adjustments. United recently provided “bimodal guidance” that took into consideration the possibility of recession, whereas Delta declined to confirm its projections.
Southwest on Wednesday announced plans to “proactively reduce capacity” and retracted its annual targets for the years 2025 and 2026. Southwest said that its domestic travel business is larger than those of its competitors.
Some Demand Is 'Sitting On the Sidelines'
American (AAL), too, retracted its full-year guidance Thursday. The company cited low domestic sales, especially in main cabin and from third-party online travel sites—often used to comparison-shop—on an earnings conference call Thursday. Executives estimate that a fatal crash occurred in January, which was responsible for $200,000,000 of the $473,000,000 loss last quarter. However, they do not expect it to affect sales.
According to a transcript provided by AlphaSense, Stephen Johnson, Chief Strategy Office said that those customers were “our most price sensitive customers”. “We’d love to think that demand has not been lost but is waiting to see what direction the economy will take.”
Alaska Air Group’s (ALK) first-quarter earnings were released on Wednesday. The company declined to provide an update of its full-year outlook beyond the current quarter.
Delta CEO Ed Bastian stated in early April that Americans were acting as if there was a recession. Delta, United and others have stated that even though cheaper seats were not filled, premium tickets and international tickets, which are more frequently purchased by the well-off, have continued to sell.
