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A Delta Air Lines Boeing 767-332(ER).
Airline stocks experienced a downturn on Tuesday, as apprehensions about lesser travel demand combined with impending tariffs and a notable decline in consumer confidence put pressure on the sector.
Shares of Delta Air Lines saw a decline of over 3% during afternoon trading. This drop followed the decision by Jefferies to downgrade Delta, recognized as the most profitable airline in the U.S., from a buy to a hold rating. The bank also significantly reduced its price target for the airline from a previous figure to $46. This reassessment comes in the wake of Delta’s recent adjustment to its first-quarter forecasts, suggesting further revisions to its 2025 predictions may be on the horizon.
Despite these challenges, Delta’s executives have indicated that the airline is capturing a growing share of revenue from its premium service offerings, including first-class seats, along with its profitable partnership with American Express for credit card services.
Delta will set the tone for U.S. airlines’ earnings season, with its earnings report scheduled for next Wednesday morning.
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Jefferies has also lowered its ratings for other airlines, including American Airlines, Southwest Airlines, and Air Canada, with the latter facing considerable risk due to a potential decrease in cross-border travel with the United States.
American Airlines shares fell around 3%, while Southwest Airlines experienced a sharper decline of over 5% during the same trading session.
United Airlines remains the only airline among the U.S. carriers to retain a buy recommendation from Jefferies, although the bank has also reduced its price target for United by 48%.
During an industry conference hosted by JPMorgan in mid-March, airline executives cautioned about weaker travel demand, especially within the domestic travel sector, which constitutes a significant portion of the U.S. travel industry’s revenue.
Overall consumer spending on credit and debit cards in the U.S. showed a 1.5% increase compared to the previous year as of March 22. However, there was a notable 7.2% decline in spending on airlines, as reported by Bank of America last week.
The Bank of America Institute’s report released on Monday highlighted that the dip in travel-related spending could be linked to the recent fall in consumer confidence, suggesting that individuals might be hesitating to make travel plans or considering a reduction in trips. They also noted that factors such as adverse weather conditions and the timing of Easter this year might be influencing these spending patterns.
Furthermore, the NYSE Arca Airline Index, which monitors primarily U.S. airlines, experienced a significant decline of nearly 17% in the first quarter of the year. This downturn was more pronounced than the S&P 500’s decline and marks the largest percentage drop for the sector index since the third quarter of 2023.
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