Why Airline Stocks Fell Today

Wall Street is beginning to worry that the U.S. economy is headed toward a recession, and analysts are making calls on individual sectors based on those fears.

Airlines historically have been vulnerable to downturns, and the sector lost altitude after a dire warning about what is to come. Shares of JetBlue Airways (JBLU -11.23%) led the way, down 11% on the day, while shares of Frontier Group Holdings (ULCC -7.82%) fell 8% and shares of Southwest Airlines (LUV -4.78%) lost 5%.

No time to fly

When times are tough, Americans are more likely to cut back on travel spending than they are groceries. That has always made airlines a cyclical business, performing well in a strong economy but faltering during a slowdown.

Analysts at Goldman Sachs are now forecasting a 45% probability of a recession, and its airline analyst team is updating its outlook for the sector as a result. The bank cut price targets across the sector, and downgraded American Airlines Group (AAL -6.59%) to a sell due to its high debt load.

Among the biggest underperformers, JetBlue and Frontier are known as “spill” carriers because they tend to benefit when airlines are packed and travelers are forced to look elsewhere other than the industry leaders. Southwest is in the early days of a restructuring that includes eliminating some passenger-friendly features and could find it hard to attract business in a slowdown.

Is now the time to buy airline stocks?

The good thing about cyclical stocks is the cycle eventually turns for the better. Most of these companies should have the wherewithal to survive a downturn, though if things get really bad questions are sure to come up about the liquidity of airlines including American and JetBlue.

The tough part is knowing when the turnaround will happen. The market is volatile right now because of uncertainty about tariffs and the impact they will have on the economy. Until there is more clarity about the direction of the economy, and with it the direction of airline demand, investors would be better off waiting to board.