United Airlines Faces Largest Air Travel Demand Decline Since 2020: What Investors Need to Know

As United Airlines (UAL) prepares to report its Q1 2025 earnings on April 15, investors are bracing for signs of the steepest demand decline in air travel since the pandemic’s peak in 2020. A confluence of macroeconomic headwinds, policy-driven uncertainty, and structural shifts in consumer behavior threaten to derail recovery efforts, even as the airline leans on international resilience and cost controls to navigate the storm.

Domestic Demand Collapses Amid Tariffs and Inflation

The U.S. domestic travel market has become a battleground for United’s demand challenges. Despite a 6% year-over-year capacity increase in Q1 2025, domestic bookings have softened sharply, with credit/debit card spending on airlines dropping 7.2% in February 2025—the lowest level in six months. Analysts attribute this to President Trump’s 10%+ global tariffs, which have fueled inflation, dampened consumer confidence, and triggered a “significant shift in GDP sentiment,” as Delta’s CEO Ed Bastian noted.

The tariff fallout has also hit corporate and government travel. United reported a 50% plunge in government-related revenue (2–3% of total business) due to federal spending cuts and layoffs, while sectors tied to defense and finance saw corporate bookings evaporate. This decline has spilled into leisure markets, with domestic leisure demand weakening as households prioritize essentials over discretionary travel.

International Resilience, but Not Enough to Offset Losses

While domestic struggles loom large, United’s international premium segments have held firm, with overseas bookings up 8% year-over-year and premium fares rising 8%. Long-haul routes, particularly transatlantic and transpacific, remain robust as high-income travelers continue spending. However, this resilience isn’t enough to counterbalance domestic softness. Cross-Atlantic bookings for June–August 2025 fell 13% year-over-year, and a strengthening U.S. dollar has hurt international demand.

Capacity Cuts and Cost Battles

Facing demand headwinds, United has pivoted to capacity discipline, retiring 21 aircraft to reduce costs and avoid $100 million in engine overhaul expenses. This follows broader industry moves: JetBlue and Spirit slashed capacity by 4% and 15%, respectively, while legacy carriers like Delta and American Airlines scaled back growth plans.

Labor costs are rising 12.9% year-over-year, squeezing margins, but lower fuel prices provide a critical offset. United’s operating profits hit $5.2 billion in trailing twelve months (TTM), underscoring operational resilience despite macro challenges.

Stock Performance and Analyst Sentiment

UAL’s stock has been a cautionary tale in 2025, dropping over 40% year-to-date as investors price in demand risks. The S&P 500 airline index has declined 15%, with United’s valuation now trading at a forward price-to-sales ratio of 0.36x—below peers like Delta (0.44x) and American (0.12x).

Analysts remain split. While 20 of 21 recommend a “Strong Buy,” GuruFocus estimates a 12.22% downside to $62.47, citing macro risks. Bulls highlight $1.5 billion in buybacks and international growth, while bears point to downward EPS revisions (23.3% over 60 days) and insider selling.

Conclusion: Navigating the Crosswinds

United Airlines’ demand outlook hinges on balancing premium international strength against a domestic market in retreat. The airline’s aggressive capacity adjustments and fuel savings offer short-term relief, but the $10 tariffs, inflation, and government spending cuts pose existential risks.

Investors should monitor Q1 earnings closely. If United confirms margin resilience and hints at further cost discipline, the stock could rebound—especially if international demand accelerates. However, a continued domestic slide or tariff escalation could push the stock lower.

The data paints a cautionary picture: while UAL’s valuation is cheap and its long-term international exposure remains a strength, near-term demand risks are real. Bulls bet on a 2026 recovery, but 2025 may be a year of survival, not growth.

In the end, United’s path forward depends on whether it can outmaneuver macro headwinds—or become a casualty of them. For now, investors are wisely holding their breath until April 15.