By Niraj Chokshi
The new year is just underway, yet it is already looking promising for U.S. airlines.
Following a series of challenges, the airline sector concluded 2024 on a solid note thanks to robust ticket demand and the capability of numerous carriers to manage costs and increase fares, according to experts. Unless major issues arise, airlines— particularly the larger ones—are anticipated to have an excellent year ahead, analysts indicated.
“I believe we’re looking at lots of clear skies ahead,” remarked Tom Fitzgerald, an analyst in the airline industry for TD Cowen investment bank.
In recent weeks, numerous major airlines revised upward their expectations for the crucial fourth quarter of the year. On Friday, Delta Air Lines announced it generated over $15.5 billion in revenue in the fourth quarter of 2024, setting a new record.
“As we head into 2025, we anticipate sustained strong travel demand,” stated Delta CEO Ed Bastian. This positions the airline to potentially “achieve the finest financial year in Delta’s century-long history,” he added.
Delta also surpassed profit forecasts from analysts and projected earnings per share, a key profitability metric, to increase by over 10% this year.
Delta’s optimistic report provides a glimpse of what is likely to be similarly positive news from other airlines set to report earnings in the upcoming weeks. This serves as encouraging news for an industry that has faced various obstacles, even as travel demand has rebounded sharply post-pandemic.
“For the past five years, it felt like every airplane in the sky was a black swan,” stated Ravi Shanker, a Morgan Stanley analyst specializing in airlines. “But it seems that this sector has its affairs in order.”
That said, this is contingent on a smooth trajectory, which is seldom the case. Events such as geopolitical tensions, terrorist attacks, air safety concerns, and possibly a significant economic slump could diminish travel demand. Escalating costs, especially for jet fuel, may erode profits. Moreover, the industry might encounter challenges like supply chain disruptions that could hinder the availability of new aircraft or complicate the repair of older ones.
Early last year, a panel detached from a Boeing 737 Max during an Alaska Airlines flight, reigniting apprehensions regarding the safety of the manufacturer’s planes, predominantly utilized by U.S. airlines, as per Cirium, an aviation data firm.
This incident compelled Boeing to decelerate production and postpone aircraft deliveries, unsettling plans for airlines intending to accommodate more passengers. Additionally, there was little that airlines could do to mitigate the situation as Airbus, the largest aircraft manufacturer in the world, lacked the capacity to compensate—both it and Boeing have extensive order backlogs. Furthermore, certain Airbus aircraft were impacted by engine issues, necessitating inspections that took jets out of service.
Other turbulence also unfolded. Spirit Airlines entered bankruptcy. A temporary technological failure disrupted many airlines, causing widespread travel interruptions and resulting in thousands of flight cancellations during the peak summer season. During the summer, smaller airlines inundated popular domestic routes with excess seating, narrowing profits during a period that typically yields substantial earnings.
However, the financial situation of the industry began to improve when airlines scaled back on flights and seating. While this posed challenges for travelers, it enhanced fares and profits for airlines.
“We’re observing a demand-supply imbalance, which grants the industry pricing authority,” noted Andrew Didora, an analyst at Bank of America.
Concurrently, airlines have been working to better their operations. American Airlines revamped a sales approach that had been frustrating corporate clients, allowing it to regain some travelers. Southwest Airlines implemented changes aimed at cutting costs and boosting profits following pressure from hedge fund Elliott Management. Meanwhile, JetBlue Airways launched a similar strategy after a less contentious engagement with investor Carl C. Icahn.
These enhancements and industry trends, combined with the stabilization of fuel, labor, and other costs, have created conditions conducive to a potentially extraordinary 2025. “This is truly the best setup we’ve seen in decades,” Shanker stated.
Nevertheless, this change won’t happen immediately. Travel demand often dips in the winter months. However, business travel usually recovers somewhat, spurred by events like this week’s Consumer Electronics Show in Las Vegas.
The optimistic prospects for 2025 are likely strongest for the largest U.S. carriers—Delta, United, and American. All three are well-positioned to capitalize on flourishing trends, including a steady revival of business travel and customers more willing to invest in upgraded seating and international travel.
Yet, some smaller carriers might perform well, too. JetBlue, Alaska Airlines, and others have been adding more premium seating options, which should help bolster their profits.
While he remains generally optimistic, Shanker acknowledged that the industry is still susceptible to a variety of potential challenges.
“Last year at this time, we were discussing doors falling off planes,” he remarked. “So, who knows what could occur.”
