By Callum Keown

Southwest Airlines and American Airlines stocks were both falling early Thursday as investors were left disappointed by the carriers' second-quarter earnings reports and commentary.

Southwest missed earnings expectation, while American's results exceeded forecasts.

Although both noted improving travel demand, that wasn't enough for investors. Southwest fell 5%, while American tumbled 8%.

The moves come after airline stocks have soared this earnings season. Reports from Delta Air Lines and United Airlines earlier this month restored some much-needed confidence in the industry.

The U.S. Global Jets exchange-traded fund has jumped 11% in July. It was up 0.8% in 2025, as of Wednesday's close, still far behind the S&P 500's 8.1% gain.

"United echoed Delta's optimism, and we will be watching Thursday's reports keenly before gaining further conviction on whether this domestic demand recovery truly has legs," Raymond James analyst Savanthi Syth said in a note Sunday.

Southwest didn't provide a definitive answer -- the company said recent industry demand "shows signs of improvement off depressed second quarter 2025 levels." It expects unit revenue, or revenue per available seat mile, in the third quarter to be anywhere between 2% down and 2% up compared with 2024 levels.

The second quarter was ultimately a disappointment. Adjusted earnings of 43 cents a share on $7.2 billion in revenue fell short of the FactSet consensus forecasts for 51 cents and $7.3 billion.

American reported adjusted EPS of 95 cents, beating estimates of 78 cents. However, its newly restored full-year guidance is likely to concern investors.

American said it now expects full-year earnings to be between a loss of 20 cents a share and a profit of 80 cents, a range whose midpoint is 30 cents. Wall Street has been looking for EPS of 72 cents.

"The company believes the top end of the range is achievable if demand in the domestic market continues to strengthen," it said in a statement. It only expects the result to be at the bottom end of the range "if there were to be macro weaknesses that are not seen today."

So, even if demand keeps strengthening, American may just about get to Wall Street's full-year earnings estimate. The carrier also expects a loss of between 10 cents and 60 cents per share in the third quarter.

TD Cowen analyst Tom Fitzgerald maintained a Buy rating on the stock Thursday, saying American has "consistently outperformed targets since [its] commercial leadership reshuffle last year." He has a price target of $13 on the stock.

Heading into Thursday's trading, American had fallen 27% in what's been a turbulent 2025 for the sector.

But Southwest, in contrast with its peers, is having a good year. The stock has risen 11% in 2025, boosted by a positive response to its decision to start charging for baggage for the first time in its 54-year history.

Though the policy has only been in place for just under two months, the airline said its financial benefit has exceeded expectations so far, with no negative operational impact.

"While risking share loss in competitive cities, it should be outweighed by the benefits of higher ancillary revenue and lower costs," Syth noted. CEO Bob Jordan said earlier this year that Southwest was carrying nearly twice as many bags as its competitors and expected cost benefits as a result of the policy change.

The discount airline is also ditching its open-seating policy. Passengers will be assigned seats, starting in January.

For the broader sector, though, Southwest's comments about demand will be the big takeaway. Alaska Air also flagged improving passenger traffic as it beat earnings expectations and reinstated its full-year guidance late Wednesday. The shares was down 0.5% in early trading Thursday.

Demand is improving, but United and Delta's earnings may have set the bar a bit too high.

Write to Callum Keown at callum.keown@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

July 24, 2025 09:53 ET (13:53 GMT)

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