Tariffs are set to make your next flight more expensive — as airline stocks keep plummeting
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- Airline stocks have been plummeting this year on fears of reduced demand.
- They were among the hardest hit by Trump's Wednesday tariff announcements.
- Analysts also expect ticket prices to rise for customers as a result of the sweeping tariffs.
Tariffs are spelling more bad news for airlines and passengers.
Even before Donald Trump's self-styled "Liberation Day" announcement, the big three airline stocks had fallen around a quarter in a month.
Analysts have already warned that airline customers are set to have less spending money while plane ticket prices rise. Morgan Stanley and Bank of America analysts said the effective tariff rate was about double what they expected.
With US companies paying the tariffs on items they import, prices are set to go up for Americans.
"The resulting hit to purchasing power could take real disposable personal income growth in 2Q-3Q into negative territory, and with it the risk that real consumer spending could also contract in those quarters," JPMorgan Chase's chief US economist Michael Feroli wrote in an analyst note.
Vacations aren't a necessity, so are something people can forego when they tighten their purse strings. Cruise and hotel stocks have dipped, too. Corporate travel is expected to drop as well, since the tariffs are designed to incentivize doing business at home.
Higher-than-expected tariffs have exacerbated an already dreary outlook for travel.
Delta Air Lines and United Airlines' share prices have fallen more than a third since the start of the year. American Airlines' is down 44%.
Stocks dipped on Tuesday after Jefferies analysts downgraded American Airlines and Delta Air Lines to Hold ratings.
They said consumer sentiment was at a four-year low and cited "swelling macro uncertainty." In other words, fewer people want to fly because of the state of the economy.
On Monday, Virgin Atlantic executives also warned of softening demand for Americans flying to the UK — although travel in the opposite direction remains at expected levels.
"We think that's quite a natural reaction to the general consumer uncertainty there is in the US at the minute," chief financial officer Oli Byers said in comments reported by several outlets.
The day after the tariffs were announced, the big three airline stocks dropped between 10% and 15% — compared to the broader S&P 500's 5% decline.
Airline ticket prices have been lower this year due to slower demand, but some analysts say they're set to get more expensive.
Airfares set to rise
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Tariffs are set to hit planemakers with the costs ultimately being passed down to passengers.
Boeing CEO Kelly Ortberg told a Senate hearing Wednesday that 80% of its airplanes are sold to customers outside the US, and a fifth of the production materials are imported.
"Free trade is very important to us," he added.
Morningstar's analyst for aerospace and defense equities, Nicolas Owens, said: "Investors concerned that the new import tariffs might be devastating to US aerospace firms may overestimate the risk."
However, there is also the risk of retaliatory tariffs on exports. Boeing's share price fell more than 10% on Thursday.
While European rival Airbus has an assembly line in Alabama, it would still have to import parts there.
"Obviously there would be an increase of cost and most probably in price for the airlines, and therefore to the end customers," CEO Guillaume Faury said in February.
In a note Thursday, analysts at Vertical Research Partners also warned they expect airfares to get more expensive.
"Ultimately we see these cost increases being passed on to airlines, and the flying public, which logically will have a negative impact on passenger demand […] and airline profits," they wrote.
Business Insider attended a summit at Airbus' headquarters in Toulouse, France, last week. At the summit, executives spoke to reporters ahead of the tariff announcement.
"We are in an industry where I think tariffs will be very, very damaging," Faury said. "Probably more damaging to the US at first glance."
He also pointed to the effects of a 17-year dispute between the US and Europe over subsidies given to Boeing and Airbus, with tariffs imposed as a result.
"It was so bad for everybody that it came to a cease-fire," he said.
Airlines have already taken a hit as Canadians book fewer flights to the US. Europeans are also starting to lose interest in transatlantic travel, the CEO of hotel operator Accor told Bloomberg.
While airlines have yet to see a drop in demand on this route, the looming trade war could change that.
