There may be Trouble Ahead:
US Airlines into a Downturn? Mar/Apr 2025

The softness of demand at the back of the bus is not surprising. US consumer confidence has weakened significantly since the beginning of the year. As shown in the graph, the Michigan Consumer Sentiment index has seen the largest sustained decline since 2022, dropping more than 20 points since December — although this is not (yet) quite as large as the 30 point fall in 2020 as Covid hit.

It makes some sense that this lack of confidence could lead to reduction in discretionary spending (such as taking a flight or going to McDonald’s).

On its results conference call United Airlines highlighted that domestic business traffic trends had slumped suddenly during the quarter. Having seen business revenues growing at around 15% year-on-year in Q4 2024, this rate of growth slowed to 7% in Q1 2025. COO Andrew Nocella commented that “contracted business sales for all future travel are currently up low-single-digits year-over-year”.

Southwest seemed a bit more positive stating that its managed business bookings were still seeing growth and were stable.

To quote Southwest’s COO, Andrew Waterson (speaking on the Southwest results call): “... you always have geographies or industries that are plus or minus one quarter or the other. Insurance, technology, banking were up this quarter; manufacturing and healthcare were down a little bit. I would consider those just the normal vagaries...”

“So what’s kind of different about this environment is that if you have kind of any kind of macro weakness usually it shows up in business first. And business travel is highly correlated with corporate earnings. Corporate earnings have held up.” And, he continued: “It’s the customers’ discretionary travel that is really the crux of the slowdown”.

However, he explicitly excluded government business travel (both state, local and federal) which saw “a marked slowdown starting in January”.

This had been echoed by United Airlines. At a conference presentation in March the airline’s CEO, Scott Kirby, mentioned that 2-3% of the carrier’s business comes from the US government — including accompanying consultants and contractors. He said: “That’s running down about 50% right now”.

The reaction to this marked slowdown in demand, from all four top airlines, has been to reduce capacity through the rest of this year — and particularly off-peak capacity. And there seems to have been a move to open the revenue management systems to deeper discounts — attempting to restore load factors at the expense of yields.

Interestingly, none of the players in their Q1 results made much mention of Canada: tourist arrivals from there into the US fell noticeably after President Trump’s suggestion to annex the country as the USA’s 51st State (see next article). Half of those incoming tourists fly; each of the three major US network carriers serve the major cities in Canada; their revenues for accounting purposes are treated as “domestic”. United did however reveal that Canadian originating passenger bookings for the second quarter were down 9% year on year.

Premium and International performing reasonably well

Delta is the only one of the three major network carriers to segment passenger revenues by broad class of travel. In the quarter it saw “Main Cabin” revenues fall by 1% to $5.3bn — 49% of passenger revenues, and 2ppts lower than the same period in the prior year. In contrast “Premium” revenues were up by 7% to $4.7bn; and loyalty awards grew by 11% to $0.9bn.

International operations account for 30% of passenger revenues at American and Delta; and 40% at United.

Of the three United is the largest player on the Atlantic, and in the quarter while demand in revenue passenger miles fell by 2.3% (on seat capacity 1% lower), unit revenues grew by nearly 5% and revenues grew by 4% overall to $1.9bn. United is also the largest of the three on the Pacific — boosted by its operations in Micronesia. Here the post-pandemic recovery had only really started at the beginning of 2024, but it continued a-pace in the first quarter: traffic was up by over 9% year on year (on virtually static capacity), yields down slightly and passenger revenues up by 9% to $1.7bn. The company noted that unit revenues in its International Polaris (business class) were up by 8% year-on-year; and those in international Premium Plus up by over 5%. Loyalty revenue meanwhile grew by 9% to $1.5bn.

United’s Andrew Nocella noted that bookings for international passengers originating in Europe for travel in the current quarter are 6% lower than last year, but that growth in US originating demand has more than compensated these reductions. Similar to American and Delta, 75-80% of United’s international demand originates in the US.

He also stated: “As we think about the impact that potential recessions could have on business traffic, it is important to note that relative to pre-pandemic, our revenue makeup is less reliant on this revenue source. Business revenue now makes up 8 points less of our passenger revenue and contributes 4.4 points less to our load factor. So far, we’ve seen no deterioration in high-end consumers’ willingness to purchase a premium experience. We attribute this to the fact that the economic uncertainty has a larger impact on more budget minded discretionary travelers than those seeking a premium experience.”

Delta generates less than a third the revenues achieved by United on the Pacific — serving a handful of destinations in North East Asia and Australasia. But in the quarter it saw a 25% growth in traffic against a 16% increase in capacity which resulted in a 16% increase in revenues to $673m. Its operations on the Atlantic and to Latin America each generated $1.3bn in the period — each 5% higher than the prior year period: Atlantic demand was flat year-on-year although capacity fell 3%; LatAm routes saw demand up by 6% while load factors dipped by 1ppt.

American Airlines in contrast has the largest exposure to Latin America with revenues in the quarter up slightly at $1.9bn — the route area accounting for 17% of passenger revenues. The operating details provided are sparce, although CEO Robert Isom did say that there was an increase in unit revenues “for the first time in more than a year” (Central America and the Caribbean had been under heavy competitive pressure, particularly from the LCCs) “and remains one of the most profitable regions on an absolute basis”.

Some of the year-on-year comparisons for American are a bit invidious: last year it had started pursuing a misguided strategy to force corporate customers to book direct. The architect of the strategy (the then CCO) Vasu Raja was booted out (see Aviation Strategy May/Jun 2024), and American is in the process of restoring customer confidence.

It noted that unit revenues on the Atlantic grew by 10.5%, although total revenues fell by 3% to $965m. On the Pacific there was a near 5% improvement in unit revenues on a 24% increase in capacity (primarily driven by strength in Japan) and a 30% surge in total revenues to $393m. (But if the DoT Form 41 filings are to be believed, American makes an operating loss on both the Atlantic and Pacific.)

During the results’ calls little was said directly about Trump’s tariffs. Delta said it would defer any Airbus deliveries that attract tariffs — it has six A330s and 29 A350s on order — “the numbers just don’t add up”. United didn’t seem too concerned, saying: “Boeing accounts for the majority of our future total order book, and most of our Airbus 321neos are produced in Alabama”. (But it too has 45 A350s on order).

Kudos however should go to Robert Isom at American who stated: “Anything that spurs demand for travel, both domestically and abroad is something we will support. This starts with making America a welcoming destination for international travelers, especially in advance of major events like FIFA World Cup 2026 of which were a sponsor and later, the 2028 Olympic Games in Los Angeles.”