Here’s why airlines think Americans will fly less than anticipated to start the year

Simone Del Rosario:

Big news for America’s biggest airlines. Several cut growth expectations with economic uncertainty and another ended a longstanding policy that corralled customers onto its flights.

Delta and American Airlines are among those pulling back on forecasts as talks of a recession pick up. Meanwhile, the nation’s favorite budget carrier will start charging for bags.

Let’s start with the two largest…

American Airlines originally expected growth of around 3 to 5 percent for the first quarter. But in an SEC filing Tuesday, the company said, “the revenue environment has been weaker than initially expected” due to the deadly aircraft collision in Washington and “softness in the domestic leisure segment, primarily in March.” The company now expects first-quarter revenue to be flat compared to a year ago.

At the end of January, 67 people died after an Army-operated Black Hawk helicopter collided with American Airlines Flight 5342. The crash happened as the plane was trying to land at Ronald Reagan Washington National Airport in Arlington, Virginia.

Just a few weeks later, a Delta flight flipped upside down while landing in Toronto, injuring 21 people.

Delta CEO Ed Bastion told CNBC both incidents are weighing on bottom lines.

Ed Bastion:

At the same time, we also had the impact of the aircraft accident that American experienced at the end of January, and then we had our own Toronto incident that was also happening all around the same time. So these events somewhat exacerbated the impact on us. So it’s not just corporate and consumer. It was also a question about safety in our industry.

Simone Del Rosario:

Delta’s woes are less pronounced than American’s…It’s still expecting growth, albeit much smaller. In January, the company projected 7-9% revenue growth. On Monday, the company cut that growth forecast in half to 3-4%.

Ed Bastion:

the first quarter is always the seasonally most difficult quarter of the year for our industry, and historically somewhat tough to project. You couple that with the fact that we entered the quarter with high growth expectations. We finished the year strong. We were up in the fourth quarter meaningful amount. We anticipated an 8% growth rate. In terms of top line, we’re going to come in at a 4% growth rate so it has not gone backwards, but it’s not growing as fast as we were anticipating.

Simone Del Rosario:

Delta specifically cited the “recent reduction in consumer and corporate confidence” in an SEC filing announcing the revision.

Southwest and JetBlue also followed the trend of downward revisions Tuesday morning.

Both Delta and American Airlines’ stocks slid Tuesday morning on the news.

But JetBlue and Southwest traded up the same day.

TikTok:

“If you fly Southwest be prepared to start paying for your first and second luggage. OK?”

Simone Del Rosario:

It’s the end of an era. After 54 years, Southwest is ending its free baggage policy. Starting May 28, only Southwest’s Rapid Rewards A-List Preferred members and those who book business select seats will get two free checked bags. Regular A-List members, along with Southwest credit card holders, will get one checked bag.

Let’s just say it isn’t going over well with customers on Social media.

TikTok:

“Southwest really woke up and chose violence this morning. Like, I had to put my glasses on to make sure that I was reading this right and I don’t even wear glasses.”

“Are you crazy? Only the top tier gets two bags free and then everyone else has to pay for a checked bag. Are you kiddling me Southwest? That’s the one thing that keeps you above all the other people.”

Simone Del Rosario:

But it is going over well with investors. The company says the move will help Southwest return to the level of profitability shareholders expect.

While Southwest has outside factors putting wind beneath its wings, the downward adjustments by other airlines are taking its toll on the travel industry. Shares of Disney, AirBNB and Marriott all lost between 4-5% by mid-morning Tuesday.

Ed Bastion:

consumers in a discretionary business do not like uncertainty. And while we do believe this will be a period of time that we pass through, it is also something that we need to, need to understand and get to calmer waters.

Simone Del Rosario:

The Conference Board’s Consumer Confidence survey took its biggest monthly dive in more than three years in February.

Conference Board Senior Economist for Global Indicators Stephanie Guichard says inflation is top of mind due to the “recent jump in prices of key household staples like eggs and the expected impact of tariffs.” She said, “There was a sharp increase in the mentions of trade and tariffs, back to a level unseen since 2019. Most notably, comments on the current Administration and its policies dominated the responses.”

But even as consumer confidence wanes and economic uncertainty has people raising recession alarms, Delta’s CEO isn’t ringing that bell.

Ed Bastion:

we’re growing 4% not 8% if it was a recession, we’d be down 10%, right? So you don’t see it. I think there’s a lot of uncertainty, but I still think there’s cautious optimism that as the uncertainty starts to clear, then businesses are going to be ready and poised to start to grow.

Simone Del Rosario:

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