By Callum Keown

Earnings reports due Thursday from American Airlines and Southwest Airlines could send a message about what comes next for U.S. airline stocks.

Some of the shares surged Wednesday, but the sector has been crushed this year as President Donald Trump's tariffs regime has sparked global economic uncertainty and clouded the outlook for travel. American is down 47% in 2025, Southwest has fallen 24%, Delta Air Lines has declined 32%, and United Airlines is 301% lower through Tuesday's close.

Domestic demand is clearly weakening. In March, Southwest and American both cut their forecasts of revenue for the first quarter as a result. But the extent of the slowdown and whether it will spread to international and premium travelers is unknown. Delta and United's earnings earlier this month showed that demand from both of those groups is holding up well, although travel to the U.S. is slowing.

United's rare decision to issue two different earnings outlooks last week highlights the uncertainty. The carrier told investors to expect 2025 earnings per share of between $11.50 and $13.50 but said the number could be between $7 and $9 in a "recessionary environment."

That's tough. If management sees two such diverging scenarios, what are investors supposed to do?

Forecasts from management at American and Southwest may turn out to be wide of the mark, but here are the numbers anyway. As it stands, Wall Street is looking for full-year EPS of $1.48 for American, below the $1.70 to $2.70 management forecast in January. For Southwest, analysts are expecting EPS of $1.46, according to FactSet data, while the airline doesn't give EPS guidance.

Beyond the guidance, investors will be looking for reassurances, or otherwise, from management about the outlook for demand and bookings. Interest is particularly intense given the so-called reciprocal tariffs Trump unveiled on dozens of countries earlier this month.

"Many investors remain bearish on the sector due to concerns about travel spend continuing to weaken, the impact of price declines from the legac[y carriers] discounting basic economy fares, and the risk that premium and U.S. outbound international travel start to decline," TD Cowen analyst Tom Fitzgerald said Friday.

"We appreciate those concerns and think there is risk to 2H25 and 2026 estimates for the sector," he added. He expects airline shares to stay range-bound until data confirm the direction of the economy.

Earnings and commentary by management will give a good indication of how airlines are performing now. But it is the severity of the turbulence ahead that will define the year for the sector.

One positive is that much of the damage to the stocks has already been done.

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

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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April 23, 2025 17:41 ET (21:41 GMT)

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