Spring and summer travel seasons are approaching, but there’s turbulence in the forecast. - Getty Images
Americans’ spending worries and shortcomings are translating into turbulence for major airlines, and coming at a time where recession fears are growing.
Travel plans are one of the bets that people make every day on their financial well-being.
By booking trips, travelers are signaling they are willing to pay now for the tickets, on top of their necessities. Then with those tickets in hand, they’re also signaling that they’re prepared to spend even more money on hotels, rental cars and food in the future once they get to their destination.
But apart from high-flying, high-income households, fewer people seem willing to make that bet right now.
Southwest Airlines LUV, Delta Air Lines DAL, American Airlines AAL each recently filed corporate disclosures lowering their revenue projections. Lighter booking trends — specifically in domestic travel — were part of the reason for the carriers’ lighter revenue-growth outlooks, according to documents filed Monday and Tuesday with the SEC.
United Airlines UAL Chief Executive Scott Kirby saw the same thing, speaking at an investor conference on Tuesday.
The “good news is that international, long-haul, Hawaii, premium [ticket sales] all remain really strong. But we have seen government and some low-end consumer leisure weakness, which also appears consistent to me with a lot of other data that I look at,” said Kirby.
At a time when the federal government is in cost-cutting mode with its so-called Department of Government Efficiency, Kirby is seeing an effect. Travel from passengers who are government employees and government-related travel is currently down 50%, though it generates a small piece of the carrier’s overall business.
On the other hand, more people have been searching for international flights compared to a year ago, according to Expedia’s spring travel outlook. Part of the draw is a strong U.S. dollar that gives Americans extra spending power aboard, the flight-booking platform said.
Stock investors face a lot of headwinds and unknowns now, including the consequences of President Donald Trump’s tariffs and whether they take full effect. But another nagging worry is whether consumers can keep spending, which is why travel plans matter for the broader economy.
“Travel tends to be a discretionary item for many consumers and businesses, making the airline sector a good current indicator of consumer sentiment,” Jay Cushing of Gimme Credit, a corporate-bond research firm, said in a Tuesday note. “The weakness in demand appears to have accelerated over the past couple of weeks with a drop in close-in bookings reflecting possible concerns about the U.S. economic outlook.”
It’s a tale of two travelers. Overall, richer households continue to spend while middle- and lower-income people are flinching at prices and accumulating debt. Consumer spending accounted for roughly 70% of America’s gross domestic product in the fourth quarter of 2024.
Spending is a matter of dollars and cents, but it’s also a matter of psychology and confidence.
A rising share of people are worried they will not have money for a debt payment in the near future, new survey data Monday showed. The share of people predicting they will not be able to make a minimum payment climbed to 14.6% in February, according to the Federal Reserve Bank of New York. That’s the highest point since April 2020.
Two in 10 people making less than $50,000 said they might miss a payment compared to 7.7% of people making over $100,000, the data showed.
A rising number of people are pessimistic about their one-year financial prospects, the survey showed. From January to February, the share of people predicting they’d be in worse financial straits a year from now climbed to 27% from 21%.
Joanne Hsu, director of the University of Michigan’s survey of consumers, said lighter travel demand isn’t an economic distress signal like a car-loan delinquency — though those rates are rising. “It’s a sign consumers may not be as willing to spend as freely as they have in previous years. … It doesn’t mean the consumer is in trouble, but it doesn’t bode well for consumer spending generally.”
So does air travel predict where the economy is going next? Preston Caldwell, Morningstar’s senior U.S. economist, doesn’t think so. A slowdown in travel spending isn’t necessarily a canary in the coal mine for the broader economy, he said, because travel is often planned far in advance.
Instead, Caldwell has his eyes on what’s next for durable goods like cars, furniture and electronics. Caldwell is expecting more consumer caution about spending due to low savings rates that won’t provide much of a buffer if things go wrong. Still, he’s forecasting the economy will continue to grow in the coming two years, but at a slower pace.
If the share of people going through airport checkpoints is any clue, air travel “still looks normal,” said Olu Sonola, head of U.S. Economic Research at Fitch Ratings.
-
Nevertheless, it’s too soon to know if the airlines’ investor guidance foreshadows something bigger, he said.
Consumers in the top 20% of the income bracket usually constitute around 45% of all transportation, recreation, food and accommodation, including air travel, Sonola added. If these passengers slow down their travel plans, maybe because they’re spooked by the broader economic conditions, that would “certainly bubble up very quickly.”
What personal-finance issues would you like to see covered in MarketWatch? We would like to hear from readers about their financial decisions and money-related questions. You can fill out or write to us at . A reporter may be in touch to learn more. MarketWatch will not attribute your answers to you by name without your permission.
