President Trump's sweeping global tariffs will cause more problems for U.S. airlines already reeling from a wobbly economy, according to an investment analyst at TD Cowen.
Economic uncertainty in financial markets has already hurt business travel this year, and TD Cowen analyst Tom Fitzgerald said there's concern that tariffs will suppress demand further. He's also concerned that steep losses in the stock market will dampen consumption, especially among baby boomers.
"Uncertainty regarding global trade policy looks unlikely to abate any time soon and the odds of a recession climb by the day," Fitzgerald wrote.
Since peaking on inauguration day, the Jets ETF fund -- a composite of U.S. airline stocks -- has fallen approximately 33%, including a drop on April 4 of more than 4%.
Several airlines dialed back earnings guidance in early March, citing declining consumer confidence, large-scale federal job cuts and the aftereffect of the fatal Jan. 29 plane crash near Washington, D.C. that killed 67 people.
Airlines will update their outlooks during upcoming Q1 earnings calls that begin with Delta on April 9. Fitzgerald expects them to further downgrade financial forecasts. TD Cowen did so on Friday, lowering revenue estimates and stock price targets across the sector.
Fitzgerald said he expects a world of slower growth, higher inflation and an increasingly isolationist U.S. to continue harming air travel demand. The good news: For those who continue flying, there's the potential for cheaper airfares.
"The speed at which demand has softened looks to have left airlines with too many domestic seats to sell in 2025," Fitzgerald wrote. "We expect pricing to remain under pressure as airlines fiercely compete to retain share."
Carriers, he added, will adjust their flying, but it will take until the second half of the year before they can bring supply in line with demand.
Fitzgerald wrote that he expects full-service U.S. airlines to fare better during this downturn than low-cost airlines. While some flyers will search for lower fares, he expects many of them to trade down to the full-service carriers' low-end fare products, including basic economy, instead of switching to discounters. The full-service airlines' stronger balance sheets, as well as the revenue support they get from lucrative loyalty programs, will give those airlines added leeway to increase basic economy inventory and discount aggressively.
"Our confidence in the legacy carriers' ability to protect share is due to their global networks, higher utility programs, hard-product investments and greater reliability," Fitzgerald wrote.