MW Airline stocks tumbled in March - why that matters for the economy

By Tomi Kilgore

Delta and United's stocks were the worst S&P 500 performers in March, amid increasing signs that consumer sentiment has soured

Investors turned tail on airline stocks in March, amid mounting signs that all the uncertainties surrounding fiscal policy and the economy are finally talking their toll on consumers, and their desire to spend on travel and experiences.

And as consumer spending remains the biggest contributor to the U.S. economy, at more than two-thirds of gross domestic product, any sign that consumers are pulling back sends a warning signal about economic growth in the months to come.

Investor sentiment toward airline stocks has shifted dramatically in recent weeks, after a number of airlines cut their earnings outlooks. There were a number of reasons cited for the cuts, including reduced government travel following cuts made by the so-called Department of Government Efficiency, a drop in leisure travel and worries about flight safety.

The reduced outlooks were corroborated by government data showing that consumer sentiment in March fell to the lowest level in more than two years.

Shares of Delta Air Lines Inc. $(DAL)$ tumbled 27.5% in March to make it the S&P 500 index's SPX biggest decliner over that time. The next worst performer? That's rival air carrier United Airlines Holdings Inc.'s stock $(UAL)$, with a decline of 26.4%.

Delta's stock had reached a record high in early February, after running up 50.4% in 2024, while United shares closed at a record in mid-January, after soaring 135.3% in 2024.

Meanwhile, the U.S. Global Jets ETF JETS dropped 15% in March, its worst month since it sank 19.4% in June 2022, when worries about a recession were running rampant. In comparison, the S&P 500 slipped 5.8% this month.

The DOGE-related job and cost cuts may be the reason for declines in government spending on travel, but what's more worrisome is that United said it saw government weakness "bleed over" to spending on leisure travel in the U.S.

That's certainly a concern for airlines, as Melius Research analyst Conor Cunningham noted that leisure travel makes up roughly 80% of airline passengers.

This drop in consumer spending on air travel could be a warning of bigger problems for the economy, because as Cunningham explained, leisure travelers have historically been "more resilient in the desire to vacation."

Even if they are worried about the economy, they'll still travel, though may pull back on spending by "trading down" to cheaper flights and destinations. And there are reasons to believe that cutting prices will be enough to stimulate demand, for now.

One of those reasons, Cunningham said, is that data shows that even if consumers are worried about the economy, they'll continue to travel as long as they aren't worried about their jobs. And the sliver lining for the economy, despite all the uncertainty, has been the fact that the unemployment rate remained historically low.

But while Cunningham noted that recent DOGE-related job cuts are still mostly in the Washington, D.C. area, expectations are for the impact to broaden as the cuts filter through to government-dependent businesses.

If the government's jobs report for March, due out April 4, shows another tick up in unemployment, Cunningham said cutting ticket prices may not be enough to stimulate demand.

"[T]hose that have the means and the willingness to travel, likely already have," Cunningham wrote. That would make it a "tough environment" for air carriers to navigate.

The worries about job security have already started to affect other consumer-facing sectors, as home builder Lennar Corp. $(LEN)$ recently said that was becoming a problem.

"Until recently, consumers have been generally confident that they will remain employed and their compensation is safe," Lennar Co-Chief Executive Stuart Miller said, according to an AlphaSense transcript of a March 21 earnings call. "But more recently, even that safety has been called into question, as somewhat confused consumers and wavering consumer confidence have challenged the consumers' desire and ability to transact."

This gives heightened importance to the March jobs data. Current expectations are for 140,000 jobs to be created, down from 151,000 in February, and for unemployment to remain unchanged at 4.1%.

-Tomi Kilgore

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March 31, 2025 16:42 ET (20:42 GMT)

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