By Rajesh Kumar Singh
Chicago (Reuters) – The trade war of President Donald Trump has created the greatest uncertainty for American airlines since the cocovio pandemic.
With little clarity on how consumers will behave in the face of a potential worsening of the economy, carriers find it difficult to predict their business.
While Delta Air Lines and Frontier withdrew their annual perspectives, United offered two forecasts for different profits.
“It really shows a lack of conviction,” said Brian Mulberry, director of the customer portfolio at Zacks Investment Management, who holds United Actions.
Economists interviewed by Reuters expect the aggressive American prices policy to trigger a significant slowdown in the US economy this year and next year, with the probability of an American recession in the coming year at 45%, the highest since December 2023, from 25% last month.
Since travel expenses closely follow the broader economic activity, very recession should reduce the revenues of airlines.
Transporters traditionally rely on capacity drops and cost management to protect their revenues in a recession environment. They have already started to draw these levers, but a fluid economic situation means that they can poorly face the brakes hard.
The popular opinion of the industry is that current uncertainty is “self-influence” and could disappear overnight if the Trump administration decided to call a truce on the prices.
The current situation is very different from the pandemic when the demand for travel collapsed, forcing airlines to go into cash preservation, said an industry official.
In comparison, reservations have not softened and could only rebound if the wider economic perspectives improve. As a result, airlines are wary of taking measures that could give their competitors the advantage, added the manager.
The American internal market is the best example of this caution. It is currently the sweetest travel market, airlines that have to stimulate demand with lower prices.
United told investors on Wednesday that its interior unit revenues, a pricing power proxy, would be negative during the current quarter. However, its capacity of the second quarter, or the seats available on flights, is estimated at 8.2% compared to a year ago – the strongest growth among the main carriers.
Andrew Nocella, commercial director of United, said that if the company planned to reduce the non -profitable flight, it would also balance market share and financial yields.
Cost management
Mixed economic indicators have only added to the enigma of industry. US retail sales and hiring increased at a much stronger pace than expected in March when business and consumer confidence has plunged.
Credit card and household card expenses increased last month compared to a year ago after having dropped a drop in February, according to Bank of America, suggesting that consumers in most of the country are still spending.
The withdrawal of the travel request is largely from low -income households. Available customers always take a vacation, underlying the demand for premium travel.
United and Delta declared an increase in annual slip in income from Premium Cabins high margin during the March quarter. Another deterioration of the economy, however, presents a risk for this source of income.
“There is a reasonable chance that reservations can weaken from here,” warned the CEO of United, Scott Kirby.
Airline leaders say that industry prospects are based on the labor market, which has remained solid. But the president of the American federal reserve, Jerome Powell, said on Wednesday that Trump’s pricing policies were likely to raise inflation and unemployment.
Faced with increased uncertainty, airlines focus on the areas they can control, such as cost management. They reduce flights during the out -of -well travel periods to reduce operating costs.
Delta and United withdraw dozens of older planes in advance to save to save maintenance costs. Delta is also based on natural attrition to reduce its workforce.
“As managers of airlines, we are excellent in the treatment of adversity,” said Delta CEO Ed Bastian. “Right now, it is difficult to know how it will be played since it is somewhat self-imposed.”
(Report by Rajesh Kumar Singh; edition by Alison Williams)