US Airline Stocks: Adjusting Our Uncertainty Ratings to Reflect Rising Macroeconomic Doubts

Shares of US airlines were buffeted in recent sessions by heightened investor concerns about tariffs potentially triggering a worldwide recession, or worse. Airline profits remain vulnerable to slack demand, and we have reviewed our uncertainty ratings for US airlines under coverage.

Why it matters: Airline stocks tend to exhibit above-average volatility and sensitivity to stock market movements. Fundamentally, small changes in airlines’ operating performance can have large effects on their bottom line.

• Notwithstanding a 90-day delay in most of the tariffs announced on April 2 by President Donald Trump, the likelihood of economic dislocation and a recession is higher than before, though the timing is uncertain.
• Our thesis remains that in the coming year or two, as supply of aircraft and personnel becomes less constrained while consumers may rein in their travel spending, airline profits will suffer.

The bottom line: We have increased the Morningstar Uncertainty Rating for Delta DAL, United UAL, American AAL, and Southwest LUV airlines from High to Very High to account for a wider spread of likely outcomes in the near to medium term. None of these airlines has an economic moat and each is highly vulnerable to macroeconomic shifts.

Bulls say: We aren’t concerned about potential tariff impacts for airlines taking delivery of aircraft from Boeing and Airbus. Delta declared that it would not pay tariffs on any jet delivery and would defer deliveries rather than pay double-digit surcharges.

• We believe all the airlines we cover, to the extent they are expecting planes from a manufacturer outside their home country, will follow the same approach. We also believe Boeing and Airbus will work with customers to juggle delivery schedules and avoid incurring tariffs.