American Airlines, Southwest Crash 10% as Economic Headwinds Hit Travel Demand — Bottom in Sight?

TradingKey - U.S. economic uncertainty is weighing on travel demand, pushing both American Airlines (AAL) and Southwest Airlines (LUV) to report declining profits in the second quarter. Despite leadership from both carriers signaling a potential turnaround ahead, shares of AAL and LUV plunged around 10% on Thursday, July 24.

During U.S. trading hours, American Airlines, despite beating revenue expectations, dropped nearly 10%. Southwest Airlines, which missed both top and bottom-line forecasts, at one point tumbled over 13% and was down 11% at the close — leading a broad sell-off in the U.S. airline sector.

Q2 Earnings Recap

American Airlines (AAL):

• Revenue: $14.39 billion, up 0.4% YoY, slightly above the expected $14.3 billion
• Net income: $599 million, down 16.5% YoY
• EPS: $0.91, above the expected $0.78

Southwest Airlines (LUV):

• Revenue: $7.24 billion, down 42% YoY, below the expected $7.3 billion
• Adjusted EPS: $0.43, down 38% YoY, below expectations of $0.51

While American Airlines delivered a stronger-than-expected top line, and Southwest’s miss was widely anticipated, both airlines cited macroeconomic headwinds — including trade tensions, inflation concerns, and consumer caution — as key drags on demand.

Signs of a Bottom?

American Airlines said July has been tough, with what should have been a peak booking period significantly weakened by economic uncertainty. 

However, the company noted that July may mark the low point, and that conditions could improve in the coming months.

It forecast full-year EPS in a range of -$0.20 to $0.80, with a midpoint of $0.30 — below the market’s expectation of $0.72. But the airline added that the upper end of the range is achievable if domestic demand continues to recover.

Southwest said the pace of demand decline in Q2 was one of the fastest it has seen in years. However, it sees signs of stabilization. The company believes that as tariff policies and other uncertainties become clearer, consumer spending behavior will shift in a positive direction.

Wall Street Turns Cautious

Despite the optimism from management, Wall Street remains skeptical.

After the earnings release, HSBC downgraded Southwest Airlines to “Sell”, cutting its price target from $27.80 to $24.20. BofA Securities maintained its “Sell” rating on the stock.

Investors appear to be pricing in continued near-term weakness, even as both airlines suggest the worst may be behind them.