The year has just begun, but it's already looking good for U.S. airlines.
After several setbacks, the airline industry enters 2024 in a fairly strong position thanks to healthy demand for tickets and the ability of some airlines to contain costs and raise fares, experts say. It is said that he has finished. Analysts said that barring any major problems, airlines, especially the biggest ones, should have a great year.
“We're going to see a lot of blue skies,” said Tom Fitzgerald, an aviation industry analyst at investment bank TD Cowen.
In recent weeks, many major airlines have revised upward their forecasts for the most important final three months of the year. And on Friday, Delta Air Lines announced that it generated more than $15.5 billion in revenue in the fourth quarter of 2024, a record.
“We expect continued strong demand for travel as we move into 2025,” Delta CEO Ed Bastian said in a statement. This puts the company on track to “deliver the best fiscal year in Delta's 100-year history,” he said.
The company also beat analysts' expectations for profits, and said it expects earnings per share, a measure of profitability, to rise by more than 10% this year.
Delta's upbeat report provides a preview of what is expected to be similarly rosy updates from other airlines reporting earnings in the coming weeks. This should come as welcome news for an industry that faces challenges even as travel demand soars post-pandemic.
“The past five years have felt like every bird in the sky has been a black swan,” said Ravi Shankar, an airline analyst at Morgan Stanley. “But it seems like there are continuing problems in the industry.”
That is, of course, if everything goes according to plan, which rarely does. Geopolitics, terrorist attacks, aviation safety issues, and perhaps most importantly, economic downturns can reduce demand for travel. In particular, rising costs of jet fuel could hurt margins. Alternatively, the industry could face challenges such as supply chain disruptions that limit the availability of new aircraft or make it difficult to repair older aircraft.
A panel on a Boeing 737 MAX blew off during an Alaska Airlines flight early last year, according to aviation data firm Cirium, renewing concerns about the safety of the company's aircraft, which are used on most flights operated by U.S. airlines. did.
The incident caused Boeing to slow production of the jet and delay deliveries. This disrupted the plans of some airlines who had hoped to carry more passengers. And because Airbus, the world's largest jet maker, didn't have the capacity to make up for the surplus, there was little airlines could do to adjust. That's because both Airbus and Boeing have long backlogs of orders. In addition, some Airbus planes suffered engine problems, forcing airlines to ground them for inspection.
There were other disturbances as well. Spirit Airlines has filed for bankruptcy. The brief technology outage wreaked havoc on many airlines, disrupting travel and canceling thousands of flights in the heart of the busy summer season. And over the summer, small airlines rushed to fill seats on popular domestic flights, squeezing profits during what is typically the most lucrative time of the year.
But as airlines reduced the number of flights and seats, the industry's financial situation began to improve. This is bad for travelers, but it has increased fares and profits for airlines.
“There's an imbalance between supply and demand, and that's giving the industry the power to set prices,” said Andrew Deidra, an analyst at Bank of America.
At the same time, airlines have been working to improve their business. American Airlines has overhauled its sales strategy, which has frustrated corporate customers, helping it win back some travelers. Southwest Airlines has made changes aimed at cutting costs and increasing profits after lobbying from hedge fund Elliott Management. And JetBlue Airways announced a strategy with similar objectives after a less contentious battle with investor Carl C. Icahn.
These improvements, along with industry trends and the stabilization of fuel, labor and other costs, create the conditions for what 2025 will become. “All of this is the best structure we've had in decades,” Shankar said. .
However, that won't happen anytime soon. Travel demand tends to be weak in winter. But business travel is up slightly due to events like the Consumer Electronics Show in Las Vegas this week.
The countries with the most positive outlook for 2025 are the largest U.S. airlines: Delta Air Lines, United Airlines, and American Airlines. All three companies are well-positioned to take advantage of positive trends, including a steady recovery in business travel and customers willing to spend more on better seats and international flights.
But some smaller airlines may also do well. Airlines like JetBlue Airways and Alaska Airlines are adding premium seats, which should help boost profits.
Although Shankar is generally optimistic, he acknowledged that the industry is vulnerable to a number of potential problems.
“So this time last year, you were talking about doors falling off airplanes,” he said. “So who knows what’s going to happen.”
