Higher Airfares Expected as Airlines Capitalize on Strong Demand and Limited Capacity Growth
Travelers heading into the holiday season may be in for a surprise: higher airfares. According to fare-tracking platform Hopper, domestic “good deal” U.S. airfare in January is expected to reach $304, a 12% increase over last year. This is due to strong demand, even during the typically slower winter months, and limited capacity growth.
Airlines have been unable to expand their flight offerings due to late deliveries of new aircraft from Boeing and Airbus, air traffic constraints, and financial pressures. As a result, they are flexing their pricing power to maximize revenue. American Airlines, for example, has forecast a 5% jump in revenue for the first quarter, while capacity will be flat or even down as much as 2%.
Other carriers, such as Spirit Airlines, have had to slash flights and reduce operations in order to cut costs. Meanwhile, startup carrier Breeze Airways has reported its first quarterly operating profit, citing conservative industry growth as a positive sign for future results.
Despite the challenges, some major airlines are seeing bright spots in their revenue growth. Off-season travel, particularly to Europe, has been a strong performer, with carriers such as Delta Air Lines expecting revenue growth of 7% to 9% in the first quarter. Carriers are also capitalizing on increased demand for roomier and pricier seats, with JetBlue Airways and Southwest Airlines set to report their fourth-quarter results and provide their 2025 outlooks next week.