Europe's airline shares outpace US peers amid tariff turbulence
The stock market has been turbulent since the start of this year as U.S. President Donald Trump's trade war has shaken consumer and business confidence.
Since travel spending is a discretionary item for many consumers and businesses, prospects of weak economic growth in the U.S. and high inflation have hit shares of companies including Delta (DAL.N), opens new tab, United (UAL.O), opens new tab and American Airlines (AAL.O), opens new tab.
Europe's main flag carriers Lufthansa (LHAG.DE), opens new tab and Air France-KLM (AIRF.PA), opens new tab reported higher second quarter results on Thursday, defying worries about transatlantic travel and reinforcing their share price outperformance as cost discipline paid off for investors.
Shares in British Airways-owner IAG (ICAG.L), opens new tab, which reports earnings on Friday, have also continued their upward trajectory, albeit more modestly than European peers.
It helps that Americans are still keen to travel to Europe on European carriers, analysts said, with Air France in particular bolstering its luxury image to sell premium seats.
Leading the share performance of big European carriers this year is Air France-KLM, with Lufthansa and IAG not far behind. The main big American carriers are all down for the year, though have seen an uptick over the last month.
The share and results performance comes despite multiple complaints from European airline CEOs that they face undue regulatory burdens tied to environmental costs and airport taxes compared to other international carriers.
The passage of Trump's tax and spending bill and some clarity on the tariff front have eased some of the macroeconomic concerns for U.S. airlines, helping their shares recover from lows this year along with hope for improvements in travel demand.
"The flag carriers have been increasingly driven by a realisation... that demand on the North Atlantic was a little weaker but it has not collapsed as had been feared by investors," said Goodbody analyst Dudley Shanley.
Still, earnings estimates of U.S. airlines for 2025 have seen significant down revisions.
"At the end of the day, travel demand is driven by the consumer having confidence," said Conor Cunningham, analyst at Melius Research, adding that if corporate travel kept improving and consumer confidence picked up things could change.
"We might look back on the tariff-induced slowdown as a temporary pause," he said.
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