In the past week, Southwest Airlines LUV announced that it will end its long-standing free baggage policy. The change will take effect on May 28. Meanwhile, Frontier Airlines, the wholly-owned subsidiary of Frontier Group ULCC, has decided to offer free checked bags for summer travel. Latin American carrier Copa Holdings CPA reported impressive traffic numbers for February.

American Airlines AAL and JetBlue Airways JBLU revised their respective guidance for the first quarter of 2025 lower, citing a slowdown in consumer and corporate travel demand. They joined Delta Air Lines DAL in revising guidance for the March quarter downward at the J.P. Morgan Industrials Conference. The DAL news was covered in detail in the previous week’s write-up.

Recap of the Recent Most Important Stories

1. In a bid to improve earnings, Southwest Airlines has decided to charge some of its customers for checked bags. This marks an end to it being the only major U.S. carrier to allow customers to check two bags at no cost. Lackluster earnings results lately have increased pressure on LUV to revamp its business as it strives to rise its operating margin to at least 10% in 2027 from 2% in 2024. The policy shift at LUV may hint at the growing influence of activist investor Elliott Investment management. Passengers who buy any ticket except LUV’s top-level Business Select fare will have to pay fees for checking bags. Customers who buy a Business Select ticket will still be able to check two bags for free. Top-tier A-List Preferred frequent flyer program members will also get two checked bags for free. The amount required to check a bag has not yet been disclosed.

LUV currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

2. Budget carrier, Frontier Airlines, has decided to walk an opposite path. Per a promotional offer, ULCC passengers are eligible to receive a bundle, including a seat assignment and a free carry-on bag. The offer is applicable for passengers who book in the March 19-24 time frame for travel through Aug. 18. The promotion applies for nonstop trips booked on Frontier’s website or app. For ULCC flights departing between May 28 and Aug. 18, passengers can get a free checked bag. The booking has to be done with promo code FREEBAG.

3. AAL now expects a loss per share of 60-80 cents in the first quarter of 2025 compared with the prior expected loss of 20-40 cents. First-quarter total revenues are now anticipated to be approximately flat on a year-over-year basis. This marks a downfall from the prior expectation of 3-5% year-over-year growth. The disappointing guidance came on the back of the softness in the domestic leisure segment (primarily in March), coupled with the mishap of AAL Flight 5342. System capacity is still estimated to be either flat or decrease up to 2% from first-quarter 2024 levels. Cost per available seat miles (adjusted) in the March quarter is still expected to increase in high-single digits from first-quarter 2024 actuals.

4. JBLU also updated its first-quarter 2025 guidance citing mixed macroeconomic indicators and weather-related disruptions during the first two months of 2025 (specifically in February), affecting travel demand. For the first quarter of 2025, capacity is now anticipated to decline in the 4-5% band (prior view: down 2-5% band). Revenue per available seat mile or RASM is forecasted to either decline 0.5% or increase 3.5% from first-quarter 2024 actuals. CASM, excluding fuel and special items, is still predicted to climb 8-10%. The average fuel cost per gallon is now estimated to be between $2.55 and $2.65, down from the prior guided range of $2.65-$2.80. Capital expenditures are now expected to be roughly $215 million (prior view: $270 million). The reduction in the capex projection highlights a more conservative approach toward spending amid demand uncertainty.

5. Driven by high passenger volumes, revenue passenger miles (a measure of traffic) improved on a year-over-year basis in February at CPA. To match the demand swell, CPA is increasing its capacity. In February, available seat miles (a measure of capacity) increased 1.7% year over year. Revenue passenger miles increased 2.3% year over year. Since traffic outpaced capacity expansion, the load factor (percentage of seats filled by passengers) rose to 86.7% from 86.3% in February 2024.

Airline Stocks Performance

The following table shows the price movement of the major airline players over the past week and during the last six months.

Image Source: Zacks Investment Research

The NYSE ARCA Airline Index increased 4.1% to $59.58 as most airline stocks traded in the green over the past week. Over the past six months, the NYSE ARCA Airline Index has increased 6.7%.

What’s Next in the Airline Space?

With air travel demand being hit by the slowdown in consumer spending and recessionary fears, further updates on the same from carriers cannot be ruled out. Also stay tuned on updates from carriers regarding route additions in the coming days.

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Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report

Southwest Airlines Co. (LUV) : Free Stock Analysis Report

JetBlue Airways Corporation (JBLU) : Free Stock Analysis Report

Copa Holdings, S.A. (CPA) : Free Stock Analysis Report

American Airlines Group Inc. (AAL) : Free Stock Analysis Report

Frontier Group Holdings, Inc. (ULCC) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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