Investing.com -- Goldman Sachs cut its outlook for U.S. airlines, warning that softening demand and rising economic uncertainty will weigh on the sector through 2025, and downgraded American Airlines (NASDAQ:AAL) to Sell from Neutral.  Meanwhile, the brokerage upgraded SkyWest (NASDAQ:SKYW) to Buy, citing its relative insulation from the broader downturn.

Goldman said it now expects a worse first quarter 2025 exit rate for demand and assumes the weaker trend will persist for the rest of the year.

While it stopped short of forecasting a full recession, the firm noted its macro team now sees a 45% chance of one in the U.S.

American Airlines was downgraded due to its higher operating leverage and weaker balance sheet, which Goldman said makes it more vulnerable to a demand slowdown. Despite these risks, AAL shares have tracked the broader industry since February.

Conversely, SkyWest, whose revenues are largely contractual, was upgraded to Buy. Goldman noted that SKYW shares have also underperformed in line with the sector, despite its more resilient business model.

The firm also slashed its earnings outlook for the industry but acknowledged that capacity cuts by airlines could help cushion the impact of softer demand in the second half of 2025.

“Historically higher-growth airlines are now producing lower-than-historical margins, but capacity reductions are encouraging,” Goldman said in a note.

The industry, it added, is better positioned than in past slowdowns due to greater consolidation, lower leverage, and more diversified revenue streams.

Goldman said Delta and United remain Buy-rated, benefiting from better segmentation and the ability to compete across various demand environments. However, the firm is turning more defensive in its positioning due to heightened economic and geopolitical risks.