US Airline Stocks Tanked by Over 20% in March

US airline stocks, including Delta Air Lines, American Airlines, United Airlines, and JetBlue Airways, tanked by over 22%

U.S. airline stocks, including Delta Air Lines (NYSE:DAL), American Airlines (NASDAQ:AAL), and United Airlines (NASDAQ:UAL), plummeted by over 22% in March amid declining consumer confidence, tariff uncertainty, and border policies.

Several carriers were also forced to reduce prices and available seating in response to lower-than-expected demand, which also factored in fatal accidents, severe weather, the Los Angeles wildfires, recession fears, and a slump in government business. However, no major capacity cuts have been announced yet, as airlines are hoping the current uncertainty will ease ahead of the peak summer season.

"I went into this year expecting it to be a blue sky year for airlines," said TD Cowen analyst Tom Fitzgerald. "Now it's just kind of clouds everywhere, and it's unclear when they're going to dissipate."

While consumer confidence fell to a four-year low last month, analysts noted that a decline in corporate travel might be a key factor affecting airline revenues. Uncertainty around tariffs and volatile border policies persuaded several companies in the automotive and defense sectors to cancel business trips, which are typically booked closer to the time of travel.

According to Melius analyst Conor Cunningham, government travel, which comprises nearly 2% of revenue for several carriers, has dropped by 50%.

Delta (NYSE:DAL) is a preferred carrier for corporate travel, posing a significant challenge for the company. Last month, Delta slashed its Q1 revenue growth guidance to 3% to 4% from 7% to 9% earlier. While CEO Ed Bastian recently stated that it has adjusted prices to attract more travelers, the airline isn't reducing capacity ahead of the summer season.

"They don't want to overreact and pull too much supply out of the market, and then things get back on track faster than they expect, and they miss out on the peak season," Fitzgerald added.

Moreover, American Airlines (NASDAQ:AAL) is flying a smaller plane with fewer seats in the Washington, DC market, while Air Canada (TSX:AC) has slightly decreased supply in the U.S.-Canada cross-border market, the analyst explained.

Furthermore, United Airlines (NASDAQ:UAL) is retiring 21 aircraft that require engine upgrades but is planning to reduce supply in the latter part of the summer at the earliest, CEO Scott Kirby disclosed last month.

"Hope springs eternal, and it is the summer peak," Kirby mentioned during a March conference. "But by the time we get to August ... every analyst is going to be writing about the capacity cuts and the supply changes." According to him, United Airlines aims to attract leisure travelers to mitigate the impact of reduced business and government-related bookings.

If the low corporate travel demand persists, Cunningham anticipates that airlines like Delta will adopt a strategy to entice leisure travelers by lowering ticket prices and allowing bookings for later dates.

"This whole industry works when everyone's in their own lane," Cunningham remarked. "It's a net negative for the overall industry when something like that is happening."

TD Cowen downgraded its Q1 profit estimates for American Airlines (NASDAQ:AAL), Delta Air Lines (NYSE:DAL), and Sun Country Airlines (NASDAQ:SNCY) following recent updates from the companies regarding their near-term projections. The brokerage also decreased its stock price target for American Airlines, Delta, and United Airlines (NASDAQ:UAL) to $26, $82, and $150, respectively, from $30, $90, and $160.

"We expect the sector to remain volatile over the next 8-10 weeks as investors digest the magnitude of the revenue weakness, and look for greater clarity on the direction of U.S. trade policy from here, the state of the broader economy and employment, as well as key industry metrics such as pricing, peak season bookings," the analyst stated.

However, analysts upgraded their Q1 earnings estimates for Southwest Airlines (NYSE:SO) and JetBlue Airways (NASDAQ:JBLU), anticipating narrower-than-earlier-estimated losses.

Fitzgerald pointed out that it has been a "frustrating period" for U.S. airlines since late January, as demand has not materialized despite the airlines' efforts to capitalize on higher last-minute fares by holding back seats.

"They are now selling earlier in the booking curve for 2Q and beyond, which will result in lower average fares, all else equal, but generating revenue is better than inventory spoiling," Fitzgerald added. He concluded that increased trade tariffs could also affect the airline industry in the upcoming quarters.