Musings of an Aviation Investor:
Profitability and Over-ordering Nov/Dec 2025

Spirit is finally addressing labour costs and is now cutting capacity aggressively, this may be too late and a forced liquidation of Spirit may transpire. Frontier must also consider its long term sustainability as it has only filled liquidity gaps in recent years from selling new aircraft to lessors and pocketing the upside cash profits. These subsidies cannot continue indefinitely and Frontier needs to grasp the nettle to deal with loss-making flying.

In Europe, the LCC performances over the peak summer months was a mixed bag for a variety of disparate reasons. Behemoth Ryanair improved year-on-year but very much as a result of weak comps against 2024 when its spat with Online Travel Agents (OTAs) meant it lost material bookings to easyJet, Jet2 and TUI. In 2025, armed with new agreements with the OTAs, Ryanair’s booking profile was earlier, and reduced fleet deliveries caused by Boeing’s troubles, resulted in improved pricing. Revenue per passenger was up 6% on 3% capacity growth. With costs held in check driven by good fuel hedges (flat unit costs YoY), its operating margin rose to an admirable 36% from 33% in the corresponding period in the prior year.

Wizz also did pretty well given its various headwinds. It managed to retain flat yields while boosting capacity by 7%. Encouragingly it reduced unit costs, meaning it made improved operating margins of 22% for the summer quarter (up from 17% in 2024). It still faced a material level of aircraft groundings given the Pratt & Whitney Geared Turbofan maintenance problems; 16% of its fleet was AOG leaving scope for improved fleet utilisation and efficiency into the medium term. However, a good portion of its flying was curtailed due to the Israel situation with this capacity redeployed to lower yielding routes. It finally gave up on its Middle East ambitions and decided to close the loss-making Abu Dhabi base, which had only opened in 2022. Perhaps a turning point for Wizz: with a major fleet deferral agreed with Airbus, and a change in CFO, hopefully Jószef Váradi, Wizz’s CEO and Founder, has bitten the bullet to make the necessary changes for longer term viability.

Another standout in this summer was Norwegian. Its capacity was restrained at +1.8% YoY, like Ryanair held back by late MAX deliveries. Revenue was up 6% with a respectable operating profit of $282m (adjusted to remove an earnings bump from a purchase of leased planes) — an adjusted operating margin of 23% up from the 18% in summer 2024. Norwegian has successfully refocused strategy to short-haul after its disastrous foray into long-haul and has created an effective competitive niche on its principal north-south leisure routes, increasingly reinforced by a corporate customer base on shorter-haul Nordic city-pairs, assisted by its acquisition of Widerøe.

Other European LCCs fared worse, with pricing and costs bearing down on margins. Jet2’s yields and unit revenues were down over the summer and it has reduced winter capacity as a result. Likewise, easyJet had a negative change in RASK, -2% RASK for the summer quarter. easyJet’s operating margin in the period was just about flat but would have been negative if not for a one-off £54m maintenance provision release from purchasing back leased aircraft. Pegasus in Turkey faced fares which were down double digit (-14% YoY) with too much new capacity in summer 2025, up 17% vs 2024. The latter’s 25% operating margin, while respectable, was down from 33% a year ago.

All European airlines are facing above inflation cost pressures, notably from Eurocontrol navigation charge rises as well as increasing environmental expenses for meeting Sustainable Aviation Fuel (SAF) mandates alongside the phase-out of Emission Trading System (ETS) allowances. These costs offset the tailwind of lower oil prices and a softer US dollar this summer.

Outside the US and Europe, LCCs also benefited from a lower dollar and softer oil prices. Volaris was hit by the Trump impact with its home market in Mexico at the centre of both trade and immigration anxieties. Its operating margin halved versus summer 2024, while it managed to break even at a net level, which was encouraging given the adverse circumstances. Cebu Pacific in the Philippines the fast growing Asian LCC, was also hit by Pratt & Whitney GTF groundings at a level above what it had expected. It incurred a small operating loss in what is its lean season, partially attributed to carrying an excess of pilots and other labour versus its productive serviceable fleet. It benefited materially in compensation from Pratt & Whitney in the form of a “free” spare GTF engine, which it was able to capitalise and book as an exceptional profit of $20m.

Spare engine provision in lieu of cash compensation was apparent in other cases; for example Frontier took six “spare” GTF engines in the third quarter with another ten planned for the fourth quarter. Frontier has been able to strike Sale and Leasebacks as well as agree new borrowings secured by spares to bolster much needed liquidity.

A lot of the performance shortcomings experienced in 2025 particularly in North America can be viewed from the classic industry perspective of “over-ordering”, the often repeated cycle experienced from the 1970s, fundamentally caused by delays in manufacturers being able to build aircraft to-order, causing backlogs to develop during the “good times”. Airlines become paranoid about missing out and Corporate Boards’ myopic preoccupation with pursuing growth to stimulate share price momentum fuel irrational bulk ordering. Delivery backlogs then stretch out even further. This pattern has been exacerbated post-Covid by supply chain disruptions, with OEMs simply unable to produce aircraft at previously pledged rates.

In recent years, earlier over-ordering has been evidenced by high-scale deliveries into North America. Spirit (100 A320 NEOs order plus 50 options placed in January 2020 plus additional leases) and Frontier, both with already sizeable fleets, had ordered on the basis of compound annual passenger growth rates for 2020 to 2030 of greater than 15%, which was simply too optimistic. Other US carriers also had high rates of deliveries of single aisle aircraft, such as Southwest and JetBlue, which contributed to burgeoning seat capacity, while Majors redeployed widebodies from international markets to domestic in the period after Covid struck.

Something had to give and with spiralling financial losses a material rescheduling of these deliveries has now occurred. Spirit, Frontier and JetBlue exemplify US airlines entering formal deferrals, while Wizz in Europe is another prime recent illustration. The manufacturers are the only winners from these deferrals benefiting from multi-year extended price escalation which ultimately means that they will receiving a price premium for the aircraft once delivery occurs at a level above the prevailing market value. Highly skilled OEMs hit by past cycles now put buffers in place and are astutely able to re-jig positions toward other airlines, thus avoiding the problem encountered in the 1970s and 80s of “white-tails” littering the parking aprons of their assembly sites.

From an investor perspective it is important to judge which airlines have over-ordered because an enforced deferral can be significantly value destructive. It is better from this perspective for airlines to be cautious and, if demand suddenly dictates, a better option is to secure aircraft (either new or used) from the lease market. Sustainable and manageable new aircraft delivery profiles are less risky in a volatile aviation space with the likes of Ryanair, Southwest, easyJet, Jet2 and Norwegian better examples of management protecting precious capital while still growing at controllable tempos.

Above not intended to be investment advice and should not be taken as such and readers should ensure that they take independent advice prior to investing and to be aware of all the risks of equity investing, including the possibility of losing all the invested capital. The writer takes no responsibility for the accuracy of the information contained.