By Callum Keown

Airlines are pulling their full-year outlooks and investors don't like it.

Southwest Airlines and Alaska Air were the latest carriers to withdraw 2025 guidance due to macroeconomic uncertainty when they posted earnings late Wednesday -- it's making it very hard for the market to chart the flight path ahead for the sector. Southwest stock fell 2.6% in premarket trading, while Alaska was down 7.2%.

Southwest had a decent quarter, reporting a narrower-than-expected loss of 13 cents per share on record first-quarter revenue of $6.4 billion -- also ahead of Wall Street estimates. But the carrier said demand weakened throughout the quarter leading to softness in bookings, particularly in domestic leisure travel.

The second quarter looks tough with Southwest expecting unit revenue to between flat and 4% down year-over-year. And beyond that it just can't say at the moment, pulling Ebit estimates for 2025 and 2026.

It's a similar story for Alaska, which is also heavily exposed to domestic travel. The carrier adjusted loss of 77 cents per share matched estimates but revenue missed. However, it was the second quarter guidance that stood out as the carrier factored in a six percentage point impact to revenue due to demand softness.

EPS guidance of between $1.15 and $1.65 fell well short of Wall Street's $2.28 estimate, according to FactSet data. On top of that, Alaska did not provide updated full year guidance citing economic uncertainty and volatility.

The airline perhaps summed it up best. "Absent the macroeconomic outlook, areas of our business within our control are performing well and in line with our prior expectations."

The problem is there's a lot that is out of airlines' control.

American Airlines is the next carrier to report earnings before the open Thursday.

While some of the shares surged Wednesday, 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 30% lower through Wednesday's close.

Domestic demand is clearly weakening. Southwest and Alaska both noted that while in March, American cut its 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.

Delta also withdrew its 2025 guidance earlier this month but United took a different, more unusual path.

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?

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.

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.

(END) Dow Jones Newswires

April 24, 2025 05:44 ET (09:44 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.