Reduced government travel and possible weakness in consumer spending in the coming months might have an impact on Southwest Airlines Co.’s and other airlines’ operations, a JPMorgan analyst said Monday.
But it’s not all bad news. Jamie Baker of JPMorgan maintained overweight ratings on five airline stocks, pointing out that companies with strong customer loyalty programs and better customer service are better positioned to beat the stock market as a whole.
In premarket trading, Southwest’s shares (LUV) dropped 2.8% after Baker cut the airline from neutral to underweight as Wall Street considers how government layoffs and increased tariffs may affect Americans.
“Investor consternation has crescendoed once again, focused primarily on the consumer, domestic capacity, and the impact of reduced government travel,” Baker wrote in a research note on Monday. “As a result, share price momentum in 2025 has eased considerably (for most) from thetorrid pace witnessed in last year’s final months.”
Additionally, Baker lowered Air Canada (ACDVF) from overweight to neutral.
He reaffirmed the overweight ratings for Sun Country Airlines Holdings Inc. (SNCY), Alaska Air Group Inc. (ALK), United Airlines Holdings Inc. (UAL), Delta Air Lines Inc. (DAL), and American Airlines Group Inc. (AAL).
While Frontier Group Holdings Inc. (ULCC) remains underweight, JetBlue Airways Corp. (JBLU) was maintained at neutral.
Because of the possible loss of business from laid-off federal employees, Baker lowered his first-quarter revenue growth prediction for American Airlines from 4.5% to 3%. Government travel accounts for almost 2% of American Airlines’ total revenue.
He claimed that JetBlue offers a “attractive risk/reward” at current share price levels, despite its neutral rating.
Although fuel costs and economic performance are normally unpredictable for airlines, investors have been more interested in the latter, Baker added.
“The skew toward macro uncertainty has perhaps never been higher,” he stated.
With the exception of Sun Country Airlines, he stated that “it’s a good time to run a full-service global airline with a high dependence on premium and loyalty, whereas opposing business models are having a tough go” now.
“We remain convinced that Southwest’s best margin and return on invested capital days lie in the past,” Baker stated. “While we’re all for well-managed turnarounds, the ask at Southwest (if one embraces the concept of returning to the industry’s margin perch) is herculean in nature, in our view.”
