Trump’s Tariffs And Spending Cuts Pushes U.S. Airlines Sector In Turbulence - Details

Less than two months ago, US airlines were riding high on the promise of a golden age, with strong demand and limited capacity that would drive multi-year profits.

However, President Donald Trump’s broad tariffs and government spending cuts have changed everything and the industry is in turbulence.

Rising Uncertainty Alters the Flight Path

According to a Reuters report, economic uncertainty driven by tariffs and reduced government spending has caused both tourists and corporations to cut back on travel expenses. Travel is a discretionary spend for many and growing concerns about economic growth and inflation have cast a shadow over the industry’s outlook. So airlines have had to lower their first-quarter profit forecasts.

The economic stress is showing up in the market with the S&P 500 Passenger Airlines Index down 15% this year and underperforming the broader S&P 500. Delta and United Airlines are down 20% each while low-cost carriers like Frontier Airlines are down less.

The Impact of Slowing Demand

To protect profit margins, carriers like Frontier, Delta, United, American Airlines, JetBlue and Allegiant have cut April-June capacity. According to a Reuters report, United Airlines CEO Scott Kirby even warned of significant capacity cuts by the end of August if demand doesn’t recover.

While premium and long haul bookings have held up with United reporting an 8% year-over-year increase in spring international bookings, domestic and leisure travel have not.

Economic pressure has been compounded by public safety concerns after recent aeroplane incidents with online searches for "Are planes safe now?" spiked 900% in February. Airlines expect those safety fears to fade but the economic uncertainty is harder to shake.

Consumer Confidence and Spending

US consumer confidence has tanked. March saw confidence drop to a four-year low with future expectations for income, business and labour conditions at a 12-year low.

This is reflected in air ticket sales which fell 8% in February after a 39% surge in January, according to Reuters.

The impact is showing up across the numbers: annual passenger traffic growth slowed to 0.7% in March and fares fell year over year for the first time in six months in February. Credit and debit card spending on airlines was down 7.2% its worst performance in over six months, a Reuters report said.

Outlook for Business and Leisure Travel

Businesses are cutting back on travel as economic uncertainty looms. Delta’s corporate bookings were in the low single digits in February after a 10% increase in January.

United saw a 50% drop in government-related travel bookings citing the impact of reduced government spending on domestic tourism. Other sectors like financial services, technology and manufacturing are also cutting back on travel.