Airlines Prepare for Higher Fares in 2025 as Strong Demand and Limited Capacity Drive Prices Up
Off-Season Travel to Europe Proves Beneficial for Major U.S. Airlines
Airlines are gearing up for higher ticket prices in 2025, as strong demand, even during the typically slower winter months, coupled with limited growth in flight capacity, allows airlines to flex their pricing power.
According to fare-tracking platform Hopper, domestic airfare deals in the U.S. this January have risen by 12% year-over-year, averaging $304, with many domestic flights priced higher than last year’s rates through at least June.
The ability to increase fares has been influenced by delays in aircraft deliveries from Boeing and Airbus, ongoing air traffic constraints, and financial pressures that have limited airlines' ability to expand flight offerings. Spirit Airlines, for instance, which filed for Chapter 11 bankruptcy protection in November, has drastically reduced its flight schedule to cut costs.
American Airlines recently forecast a 5% increase in revenue for the first quarter of 2025 compared to the same period in 2024, despite expecting capacity to remain flat or decrease by up to 2%. “We do expect airfare to come up,” said American Airlines CFO Devon May, though the airline also predicted a wider-than-expected loss for the quarter due to rising costs, including higher wages from recently signed labor contracts.
Breeze Airways, a startup carrier, reported its first quarterly operating profit for Q4, with founder David Neeleman expressing optimism about industry growth. “The tide is lifting a lot of boats,” he said, noting that the momentum from Q4 was continuing into the new year.
Alaska Airlines also shared a positive forecast, predicting high single-digit percentage revenue growth for Q1, with capacity expected to increase by no more than 3.5%.
United Airlines, which exceeded analysts' expectations for Q1 earnings, also noted improving conditions, especially for domestic travel. Chief Commercial Officer Andrew Nocella pointed out that unprofitable capacity is being removed by underperforming airlines, while business traffic continues to grow. “Industry fare sales are less prevalent, with lower discount rates as airlines prioritize profitability,” he added.
Delta Air Lines, which kicked off earnings season earlier this month, also forecast a revenue increase of 7% to 9% for Q1, with strong demand across its global network. Delta’s president, Glen Hauenstein, highlighted the success of off-peak trans-Atlantic travel, noting that “demand is benefiting from strong U.S. point of sale and an extension of the season with unprecedented off-peak results.”
U.S. carriers are also seeing more passengers opting for premium, higher-priced seating. JetBlue Airways and Southwest Airlines are set to report their fourth-quarter results next week, with both airlines focusing on revenue growth through the introduction of more premium seating options and other new amenities.