What happened

The airline industry's already tricky attempt to navigate away from its pandemic-era lows is facing fresh headwinds, and investors are reacting by heading for the emergency exits. Shares of Hawaiian Holdings (HA -0.35%), Frontier Group Holdings (ULCC -0.72%), JetBlue Airways (JBLU -0.15%), and American Airlines Group (AAL -0.13%) both traded down as much as 5% on Tuesday, and shares of Delta Air Lines (DAL -0.26%) and United Airlines Holdings (UAL -1.43%) weren't far behind, as the market reacted to the latest risks facing the sector.

So what

It has been a difficult few years for airline investors. The pandemic caused travel demand to evaporate, and efforts to return to profitability this year as demand has returned have been complicated by higher fuel and labor costs.

The latest question facing investors is whether demand will hold up should the economy fall into a recession. Markets were deep in the red on Tuesday after the August inflation data came in hotter than expected, raising new concerns the Federal Reserve would be forced to act aggressively to cool the economy and could push the U.S. into a recession.

Inflation is bad for airlines not just because costs go up, but because for most, travel is a luxury item that can be put off at times when more of the paycheck is going to necessities like food and housing. A recession would likely further crimp demand, both for leisure and business travel.

Among the airline stocks, JetBlue is a particular risk right now because of the airline's pending acquisition of Spirit Airlines (SAVE 0.15%). The deal might be a good long-term strategic move, but the prospect of integrating businesses in the middle of a recession is daunting.

American, meanwhile, has the most debt among the four major U.S. airlines and can least afford a prolonged downturn.

The airline stocks could also be reacting to President Joe Biden announcing a crackdown on airline customer service, reacting to a summer full of flight delays and cancellations. The government is requiring airlines to provide meals and hotel rooms to passengers severely impacted by some types of flight delays, adding an additional expense.

Now what

The airlines showed in 2020 and 2021 that the industry is much more resilient than it once was, and investors need not worry that a recession would cause a flurry of bankruptcies. Instead, the issue is when this industry will finally be able to get airborne again after a miserable few years.

At best, it will likely be 2024 before business travel fully returns to pre-pandemic levels and airlines are able to normalize operations. And the threat of a recession means there is no guarantee even that delayed timetable will be met. Given the risks, and the uncertain timing of a reward, there isn't much of a reason to be excited about airline stocks right now.