Southwest Airlines (NYSE: LUV) has not yet seen a rebound in demand for travel, disappointing investors who had been hoping for a quick turnaround.

Southwest shares fell as much as 4.5% when comments were made by the company's CFO before rebounding somewhat and trading down 1% as of 2:30 p.m. ET.

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Image source: Southwest Airlines.

Discretionary spending takes a dive

Airline stocks are highly cyclical in nature. When budgets get tight, it is easier to skimp on travel than the grocery bill, meaning airlines tend to see demand fall when the broader economy is under pressure.

Several airlines withdrew or scaled back full-year guidance during earnings season, complaining of a surprise collapse in demand late in the first quarter. There was some hope the collapse would be short-lived.

Southwest CFO Tom Doxey, speaking Thursday at a Wall Street conference, said, "We have not seen in the industry an inflection back" toward more robust demand. Doxey said unit revenue in the first quarter was about three points worse than what they had expected heading into 2025, and second-quarter unit revenue is trending toward about six points worse than what was expected.

That's not good news, and there is some reason for investors to worry it is a Southwest-specific issue.

A day earlier, United Airlines Holdings said it was seeing a "stable" revenue and booking environment heading into the busy summer travel season.

Is Southwest Airlines a buy?

Investors shouldn't make too much of the Southwest/United comparison, as they were slightly different questions, but Southwest could indeed be a standout to the downside.

The company is early in the process of revamping its business model, including getting rid of popular features, including free checked bags. Although Southwest said it has not seen a consumer backlash so far, it is possible consumers are booking elsewhere.

Even in the best-case scenario, Southwest is a company in transition during a dangerous period for the industry. Investors have every reason to be cautious as the summer travel season plays out.

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Airlines are among the most discretionary sectors out there, tied closely to the health of the consumer. So, perhaps it is no surprise that the stocks are seeing an oversize reaction to reports suggesting key parties are moving to de-escalate the trade war gripping the U.S. economy.

Shares of JetBlue Airways (NASDAQ: JBLU) traded up 10% as of 10 a.m. ET, and shares of United Airlines Holdings (NASDAQ: UAL), Delta Air Lines (NYSE: DAL), American Airlines Group (NASDAQ: AAL), and Southwest Airlines (NYSE: LUV) were all up more than 5%.

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Clear skies up ahead?

We are only halfway through airline earnings season, but the message from the companies that have reported is clear: The industry is not seeing a dramatic fall-off from near-record demand, but executives are anticipating declines in demand should tariffs eat into the economy and cut consumer purchasing power.

Historically, airlines have been a bad sector to invest in during a recession. Households struggling to pay bills and afford groceries are unlikely to book vacations.

On Wednesday, investors were buying in hopes a worst-case scenario could be avoided. The market is up big on reports that the White House is mulling cuts to steep tariffs on Chinese imports, a move that could lessen the blow on consumers and lower the odds the U.S. falls into a recession in the second half of 2025.

Is now the time to buy airline stocks?

Investors should proceed with caution from here. The market has been volatile of late, trading up and down based on the latest tariff headlines. It is dangerous to try to get ahead of rumors, and until there are actual moves to de-escalate, it is possible these gains could evaporate just as quickly as they materialized.

For those willing to accept the turbulence and look past whatever near-term noise might be on the horizon, Delta and United are the safest investment choices from this group. JetBlue and American have relatively high debt burdens and questions about their revenue models, and Southwest is in the process of eliminating consumer-friendly policies and could see a backlash in the quarters to come.

United execs sounded an optimistic tone about the quarters to come even with the headwinds the airline is currently facing. If those headwinds recede, the airline looks best-positioned to gain altitude from here.

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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Delta Air Lines and Southwest Airlines. The Motley Fool has a disclosure policy.