Airline stocks face murky outlook following record US shutdown

Wall Street is souring on U.S. airline companies, after the longest government shutdown in the country’s history crimped hopes that carriers can salvage a challenging year.

While Washington has reopened and airlines are scrambling to bring service back to normal, a chronic shortage of air traffic controllers is clouding the outlook for the closing months of 2025 – ramping up pressure on an industry already suffering after the shutdown led to thousands of federally-mandated flight cancellations.

An S&P gauge of airline shares is down 6.5% year-to-date compared with a 15% gain for the S&P 500 Index – on track for its worst annual performance versus the broader market since 2021.

Analysts have grown more pessimistic regarding the sector’s short-term outlook: the average fourth-quarter earnings per share estimate for U.S. airlines has slipped 0.9% since the beginning of November, according to Bloomberg Intelligence data. Expectations for 2025 earnings are down almost 2% in that same period.

“It seems like airlines perpetually cannot catch a break,” said David Wagner, portfolio manager at Aptus Capital Advisors. “Right now, the hope for airline stocks is that a consumer resurgence will come into play over the next few quarters due to the tax breaks from Trump’s bill. But if that cannot spur some growth in air travel, the group may catch some turbulence in the near term.”

Year-end hopes

The fourth quarter is typically an important stretch for the airline industry, as the winter holidays provide a crucial boost in demand. For investors, such a lift would have been particularly welcome this year, a period during which airline stocks were pressured by worries that President Donald Trump’s trade war would stoke inflation and eat into consumers’ discretionary spending.

Several airlines have sounded cautious notes, however, even after some of them incorporated conservative assumptions into fourth-quarter forecasts to account for potential disruptions.

Southwest Airlines Co. said in late October that the shutdown was threatening the record sales it expects during the holiday period, while Delta Air Lines Inc.’s Chief Executive Officer Ed Bastian told Bloomberg Television on Wednesday that flight cuts caused a significant financial hit to the carrier’s quarterly results.

“Industry expectations entering Q4 were appropriately tempered, reflecting the broader pullback in U.S. consumer discretionary spending observed throughout 2025,” said CFRA Research analyst Ana Garcia. “Passenger volume strength in October provides some room to deliver within guidance but puts pressure on the rest of Q4 to operate without any additional disruptions, including weather-related events.”

Staffing shortages

Recent days have brought some hopeful signs for the industry. The Transportation Department and Federal Aviation Administration said Wednesday that flight reductions at 40 major U.S. airports will be frozen at 6%, rather than rising to 10% as previously planned, as more air traffic controllers report for work.

Transportation Secretary Sean Duffy said authorities aim to lift flight reductions at major airports within a week of the government reopening. More than 10,000 flights departing from U.S. airports over the past week were canceled, according to data from Cirium, an aviation analytics company. Sunday and Monday were the fourth and fifth worst cancellation days, respectively, in the U.S. airline industry since January 2024.

“Because the shutdown is finished for now, we’ve avoided the worst of the potential outcomes, which was Thanksgiving week mayhem,” said Grace Lee, a senior portfolio manager at Columbia Threadneedle Investments.

Still, long-running air traffic controller staffing shortages are likely to persist.

“Airlines will look to mitigate the negative revenue impact from the flight cancellations by cutting their least profitable routes first,” said Jay Cushing, an analyst at GimmeCredit. “But we expect air traffic controller staffing shortages, which were a problem before the shutdown, to remain a bottleneck.”

No matter how long flying is curtailed, it is set to boost costs, given certain expenses – like wages – cannot be avoided, according to Bloomberg Intelligence analyst George Ferguson.

“Financial health amid a lingering shutdown favors airlines with the strongest balance sheets, like Delta and Southwest,” he wrote.