MW Here's how DOGE cuts, safety fears and a slowing economy are hurting airlines

By Tomi Kilgore and Claudia Assis

Southwest will start charging for checked bags, American Airlines sees revenue hurt by the Flight 5342 crash, United's government business has dropped

Shares of American Airlines Group Inc. were heading toward a five-month low Tuesday, after the air carrier said it now expects a much wider quarterly loss, as fears over flight safety have hurt leisure travel demand.

Meanwhile, Southwest Airlines Co. $(LUV)$ and United Airlines Holdings Inc. $(UAL)$ said they've seen softening in domestic travel demand, with both airlines citing a decline in government travel. That makes sense, since the Department of Government Efficiency, run by Tesla Inc. $(TSLA)$ Chief Executive Elon Musk, has been slashing government programs and jobs to cut costs.

Read: Here's the Republican plan to make 'DOGE' cuts permanent.

American's stock $(AAL)$ slid 6.4% in morning trading Tuesday, toward it's lowest close since Oct. 7, while United shares fell 5%, also toward a five-month low.

But Southwest's stock surged 6.7%, to bounce off a seven-month low, after the carrier's downbeat revenue outlook was offset by lower cost guidance and it's plan to start charging checked bags and to add an expiration date to flight credits.

The lowered financial outlooks from the airlines comes just after Delta Air Lines Inc. $(DAL)$ issued its own big profit and revenue warnings, citing lower demand from increased uncertainty over the economic outlook.

Delta's stock dropped 8.6% toward its worst day in 14 months and a six-month closing low.

Read: Delta cuts its once-rosy outlook. Here's what's worrying the airline.

United said at the J.P. Morgan Industrials conference that government is 2% of its business, and "government adjacent," which includes consultants and others working on government contracts, makes up another 2% to 3% of the business.

"That's running down about 50% right now," said Chief Executive Scott Kirby, according to a FactSet transcript. "So a pretty material impact in the short term."

When asked whether he expects any upside from all the DOGE cuts, Kirby said he thinks there's an opportunity to make the government more efficient, but he would go about it a little differently.

"If I was running it, a little more scalpel, maybe a lot more scalpel approach," Kirby said.

United didn't lower its outlook, but did say it expects results at the low end or previously provided guidance ranges.

"Good news is that international, long haul, Hawaii, premium all remain really strong," Kirby said. "But we have seen government and some low-end consumer leisure weakness."

That matches the commentary Delta provided in its warning, in which the carrier said while there was "softness" in domestic demand, the outlook for premium and international travel haven't changed.

Raymond James analyst Savanthi Syth said that while first-quarter is a more impacted due to its own seasonal weakness, with fewer peak travel periods, the outlook for the second quarter is stronger "due to the greatest peak period exposure and self-help steps by airlines."

Elsewhere, Southwest lowered its growth outlook for first-quarter revenue per available seat mile to 2% to 4% from 5% to 7%. Its expected increase in costs per available seat mile was lowered to 6% from a previous estimate of 7% to 9%, due to lower-than-anticipated salaries and benefits and maintenance costs.

The company said the impact on travel from the California wildfires was greater than expected, and the slowing economic environment also hurt demand.

But the stock rallied, as investors cheered some new initiatives aimed at creating choices for its more loyal passengers. While Southwest will start charging for first and second checked bags, starting on flights booked on or after May 28, preferred members of its rewards program and customers traveling on "business select" fares will get two free checked bags.

Southwest also said flight credits for tickets purchased on or after May 28 will expire one year, or earlier, from the date of ticketing.

And American disclosed that it now expects a first-quarter adjusted-per-share loss, which excludes nonrecurring items, of 60 cents to 80 cents, compared with previous guidance of a per-share loss of 20 cents to 40 cents.

And total revenue is now projected to be flat compared with a year ago, down from previous guidance for growth of at least 3% to 5%.

The company said that since it gave guidance in late January, the revenue outlook has weakened "due to the impact of Flight 5342 and softness in the domestic leisure segment, primarily in March."

Flight 5342 crashed into an Army helicopter in late January, as it was landing at Washington, D.C.'s Ronald Reagan National Airport, resulting in the deadliest U.S. air disaster in decades.

American's stock has now tumbled 32.4% since the Flight 5342 crash, while the U.S. Global Jets ETF JETS had lost 17.8% over the same time.

Delta's stock has fallen 32.7% since the Jan. 29 crash and Southwest shares have given up just 5% over the same time frame.

-Tomi Kilgore -Claudia Assis

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March 11, 2025 11:26 ET (15:26 GMT)

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