Southwest Airlines has joined Delta and United in cutting flights and withdrawing its financial forecast due to the economic uncertainty caused by President Trump’s trade war. This marks the biggest challenge for the airline industry since the COVID-19 pandemic.
The lack of clarity regarding consumer behavior in a potentially worsening economy makes it difficult for airlines to forecast their business accurately. Travel, being a discretionary expense, is affected by slower economic growth and higher inflation, leading to reduced spending on travel.
Southwest Airlines stated that it cannot reaffirm its previous forecast of earning $1.7 billion before interest and taxes in 2025 and $3.8 billion in 2026. The company cited macroeconomic uncertainty as a reason for the difficulty in forecasting given the short-lived booking trends.
Southwest’s shares dropped by 3% in after-hours trading. Alaska Air Group also withdrew its 2025 profit forecast due to similar uncertainties. Earlier this month, Delta Air Lines and Frontier scrapped their forecasts, while United Airlines provided two different forecasts, highlighting the unpredictability of the current macro environment.
This represents a significant shift for US carriers, which were optimistic about a new golden age of travel just two months ago. Airlines like Southwest, which primarily serve price-sensitive leisure customers within the domestic market, are particularly affected. The domestic market is currently the weakest, with airlines needing to stimulate demand through lower fares.
Southwest noted a decline in bookings during the March quarter for domestic leisure travel, where it has more exposure compared to competitors like Delta and United. The company expects a decline of up to 4% in unit revenue from the previous year in the current quarter.
Weakening travel demand adds to the challenges Southwest faces post-COVID-19. The airline has been under pressure to revamp its business model, including ending open seating and introducing checked bag fees. CEO Bob Jordan stated that these changes have not led to a loss of customers, and the airline plans to introduce basic economy and bag fees next month.
To maintain margins amidst softening demand, Southwest will reduce capacity in the second half of the year. In the first quarter, the airline reported an adjusted loss of 13 cents per share, better than the expected loss of 18 cents per share.
— new from New York Post