Airline Stocks Hit Headwinds As Carriers Cut Guidance, ETFs Enter Turbulence

The airline industry is back in the headlines, though not in a way that would make investors cheer. Another batch of earnings releases from large U.S. carriers—American Airlines (NASDAQ:AAL), Southwest Airlines (NYSE:LUV), and Alaska Air (NYSE:ALK)—has brought a somber message: the skies are cloudy for forward-looking guidance. As these airlines take back their 2025 outlooks in response to escalating macroeconomic uncertainty, investors holding airline-themed ETFs are replanning their altitude.

ETFs In Focus

These are the three most susceptible ETFs most exposed to the turbulence shaking up the skies:

U.S. Global Jets ETF (NYSE:JETS)

This is the most widely held airline ETF among most investors, providing access to a portfolio of global airline shares, with a heavy U.S. bias. JETS has large stakes in Delta Air Lines (NYSE:DAL), United Airlines (NYSE:UAL), American, and Southwest—all of which have watched their share prices spiral downward more than 20% on an average so far into 2025. Needless to say, JETS has declined sharply year to date, almost 23%, both as a result of weaker domestic demand and increasing economic headwinds.

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iShares Transportation Average ETF (BATS:IYT)

Although not airline-centric, IYT does have high exposure to airlines, along with freight and logistics stocks. The fund has been stressed by weakness within the passenger air travel component, as air travel demand between the U.S. and other countries especially Canada, has been affected due to tariffs and is susceptible to additional challenges if the slowdown permeates to cargo and global travel.

SPDR S&P Transportation ETF (NYSE:XTN)

XTN provides equal-weighted exposure to the wider transportation space, including regional carriers. It’s more attuned to under-the-radar participants such as Alaska Air, which have fallen harder than their big-cap peers because they’ve been more dependent on domestic routes—now the weakest part of the market.

Guidance Cuts

Although first-quarter results were largely better than projected, the actual theater of action is in the empty forecast columns.

American Airlines topped revenue expectations and reported a smaller-than-expected Q1 loss, but withdrew its full-year forecast, stating visibility is limited and clouds are dense.

Southwest seconded that view, regardless of record Q1 revenue, withdrawing earnings guidance for 2025 and 2026 after experiencing demand weaken over the course of the quarter.

Alaska Air fell short on revenue and sharply reduced Q2 expectations, stating it is anticipating a 6 percentage point revenue hit from soft demand.

If investors were expecting clarity, they received fog instead.

Macro Headwinds And Tariff Crosswinds

Aside from consumer demand, geopolitics and trade tensions are also blowing fiercely. Tariffs imposed by President Donald Trump have contributed to growing economic uncertainty, with spillovers affecting airline sentiment.

Boeing, meanwhile, is seeking to reroute dozens of undeliverable planes originally destined for Chinese customers. “We have many customers who want near-term deliveries, so we plan to redirect the supply to the stable demand. And we are not going to continue to build aircraft (and ship it) to customers who will not take them,” Boeing CEO Kelly Ortberg explained in the earnings call.

So far this year, American Airlines has fallen 43%, Southwest is down 22%, Delta and United have slid 30% and 28%, respectively.

The domestic demand drag is evident across the board. Airlines are hoping that international and premium segments, currently holding up, don't catch the same cold, as expressed by TD Cowen analyst Tom Fitzgerald, cited by Barron’s. But that's a risky bet in a macro environment where clarity is more elusive than a free in-flight upgrade.

What's Next For Airline ETFs?

Investors are struggling with mixed signals: strong near-term performance in certain segments vs. gigantic uncertainty to come. Fitzgerald warned that airline stocks are likely to remain range-bound until more definitive economic data are available, citing risks to second-half 2025 and 2026 earnings estimates.

While airline ETFs might still be a long-term bargain—currently, investors are in a holding pattern. Until economic skies brighten, it may be best to have that seatbelt tightly buckled.

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