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CAPA: How Airlines Are Moving On From The COVID Recovery Phase

air traffic control tower
Credit: Rob Finlayson

Pre-pandemic comparisons are becoming less relevant as the worldwide COVID-19 crisis fades further into the past. However, passing the 2019 capacity level is still a symbolic milestone and illustrates how many years the industry’s growth was set back.

European airlines can view 2024 as the year when they finally completed the capacity recovery from the pandemic. LCCs are leading the way across the region, and this seems likely to continue in 2025. In the 2025 first quarter, Europe’s capacity is expected to rise slightly, confirming the recovery but with little further increase. Aviation supply chain constraints and the ongoing (but slow) process of European airline consolidation are likely to contain capacity growth, and this may help to support yields in 2025.

The year 2025 will bring challenges in aircraft supply, recruitment, airspace capacity and the green transition, but Europe’s airlines are beyond the COVID-19 recovery phase.

Data
The data is calculated by comparing the week of the year to the corresponding week in 2019 (the first week of 2024 is compared to the first week of 2019). Source: CAPA and OAG

The Asia-Pacific airline industry is also set to continue its international capacity growth in 2025 and finally move past the pre-pandemic benchmark, although the growth rate will be hindered by aircraft availability issues. Airlines in this region are collectively close to 2019 capacity levels in the international market. It seems likely they will exceed that mark early in the new year. Aside from a few key international markets, the factors inhibiting capacity growth are no longer demand-related. Airlines want to grow faster, but are frustrated by engine issues, delivery delays and supply chain bottlenecks.

Aircraft orders by Asia-Pacific airlines have soared over the past few years as airlines look to rebuild their fleets. This trend will continue this year, with some key deals looming, although possibly to a lesser extent than in 2023 and 2024. Constrained capacity will help to keep yields and revenue relatively high, although they may moderate somewhat in 2025. Collective profits in the region are expected to rise slightly, although financial fortunes will be mixed.

In North America, if an algorithm was created to track the number of times premium was referenced over the last couple of years, the results would be significantly higher than profits at some of the region’s airlines. Premium products, ranging from seats to lounge access, are cornerstones of nearly every major North American airline’s strategy, regardless of business model. A case in point is the decision by Denver-based ULCC Frontier Airlines to introduce a first-class offering. The push into premium products is arguably more than a decade old, but various factors have accelerated the adoption of them by unlikely airlines. Now the question for 2025 and beyond in North America is: Is there a risk for oversupply in the premium space?

Delta Air Lines has forecast that premium revenue will surpass main cabin offerings by 2027. The carrier projects that premium revenue should represent 57% of its total revenue in 2024, with a long-term target of 60%. Premium revenues at American Airlines and United Airlines grew faster year-over-year in the 2024 fourth quarter than their capacity. There’s no shortage of ambitions among North American airlines to grow premium revenue, and they will be putting the pieces in place this year and beyond to capitalize on favorable prospects in that passenger segment. Winners and losers can be expected to emerge in the execution of various strategies catering to passengers seeking a higher-end experience.

Two of Latin America’s largest airlines—LATAM Airlines Group and Avianca—are bullish heading into 2025, driven in part by their competitive cost structures and product offerings that target a range of customer classes. Those favorable cost structures position each airline well vis-a-vis their long-haul rivals. Recognition that product segmentation is key to bolstering revenues should bode well for LATAM and Avianca.

Of course, challenges remain for airlines operating in Latin America, including oversupply within Colombia, which should ease somewhat this year. And changes could occur in Brazil’s aviation sector if discussions regarding potential consolidation materialize into something more market-changing.

Constraints, including aircraft, engines, parts, labor costs and airspace and the costs of the green transition, will be the main challenges of 2025 and beyond. But it should be borne in mind that the strong growth in fares of the initial post-pandemic period is unlikely to recur as demand normalizes to being driven by GDP growth.