By Callum Keown

It was a turbulent and ultimately terrible first quarter for airline stocks. The second quarter may not be much better for the industry.

Jefferies analyst Sheila Kahyaoglu downgraded American Airlines and Delta Air Lines to Hold from Buy and Southwest Airlines and Air Canada from Hold to Underperform, in a note Tuesday.

Summer demand is under pressure as "corporate and consumer sentiment to remain soft on swelling macro uncertainty," she said. Kayhaoglu expects American, Southwest, and Air Canada to cut full-year 2025 earnings guidance, with Delta also likely to do so. Then there's the risk of current softness in domestic demand spilling over into international markets, she added.

Southwest stock was down 2.9% in premarket trading, Delta fell 2%, and American was down 2.1%. The downgrades leave United Airlines as Jefferies' only Buy-rated carrier and that is due to the "opportunity beyond 2025." United also pointed 1.5% lower ahead of the open.

With consumer confidence plummeting and more tariffs set to take effect later this week, it could be a tough few months for airline stocks.

The sector has struggled in recent weeks amid signs of a pullback in travel spending. Delta was the first carrier to issue a warning, cutting guidance last month as it said consumer and corporate confidence had been dented in the first quarter.

Delta stock has tumbled 27% over the past month, while American and United are both down 26% over the same period. In contrast, Southwest has climbed 8%, buoyed partly by its decision to end its policy of no charging for checked bags in a bid to boost revenue growth.

The sector's slump has been sharp and severe, which can sometimes point to a rally ahead. But airline stocks have been heavily exposed to macro uncertainty and tariffs -- and it looks like there will be more of that to come.

Write to Callum Keown at callum.keown@dowjones.com

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April 01, 2025 08:32 ET (12:32 GMT)

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