Podcast: What To Watch With Airlines This Year

Listen in as Aviation Week Network editors discuss the world's airlines and industry issues they will be monitoring this year.

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Transcript

Karen Walker:

Hello everyone and happy New Year and welcome to Window Seat, an Aviation Week air transport Podcast. I'm ATW and Aviation Week Network Air Transport editor-in-chief, Karen Walker. Delighted to welcome you on board. This being our first program of the new year, I've gathered together some of our key senior editors to join me in a discussion on what we'll be looking out for across the global air transport industry during 2025.

Predictions are always a precarious business in this industry, but I think we all have some ideas on the things we'll be keeping an eye on. So let me first welcome and introduce Routes editor-in-chief David Casey, Routes and ATW senior editor Aaron Karp, CAPA senior analyst Americas Lori Ranson, and ATW senior editor Chris Sloan.

Hello, everyone. Thank you very much for joining me today. Let me just kick off by saying there's one forecast that has been made by a very well-regarded authority and that's the IATA Economic Outlook, which believes the world's airlines will post a collective net profit of $31.5 billion for this year—for last year, I'm sorry, we're already ahead, for 2024. And $36.6 billion for 2025.

And also in 2025 they noted that they expect the collective revenues for airlines to be just above the $1 trillion mark, which will be the first time they've gone over that. So that's good news. Certainly being back in the black after the pandemic years is excellent.

As is typical with the airlines, margins will be razor-thin, hovering at about just over the 3% mark each year, 24 and 25. Or as IATA likes to phrase it, meaning it will make a profit of about $7 per passenger. So in some ways, 2025 could really be about getting back to normal.

David, can I just start with you? What do you think and what do you see happening in particular in terms of passenger traffic growth?

David Casey:

Overall, I think we're going to see continued growth in passenger traffic in 2025. Coming out of the pandemic, we heard a lot about revenge travel, that pent-up demand for travel, but I think what's becoming clear is that level of demand isn't just a short-term phenomenon, it's here to stay. And that's despite the rising costs that we're seeing across daily life. Inflation doesn't really seem to be dampening that appetite to travel.

For example, in the US over Thanksgiving, we had a record Thanksgiving travel period. I think there were 232,000 flights from November 24th to 28th, which is the highest number ever. In China, we've got Spring Festival right around the corner, and China is forecasting it to be another record-breaking period with about 90 million travelers over the 40-day period. And I think globally we're seeing a lot of surveys that point towards a positive travel trend as well.

So you reference some IATA stats there and I know in December they published a survey which said four in 10 travelers expect to travel more in 2025 compared to 2024 and about half said they're willing to spend more as well. And I think the forecast backed this up. IATA expects passenger traffic this year to reach 5.2 billion passengers in 2025, and that's a 6.7% increase over 2024.

And it'll mean that for the first time, the number of passengers will exceed the 5 billion mark globally. So there's obviously challenges, there's capacity constraints, there's geopolitical tensions, there's economic uncertainties, which obviously could impact this outlook. But barring any major shocks, I think 2025 looks to be a record year for passengers and will set a new benchmark for the industry.

Karen Walker:

Aaron, what's your thoughts on that?

Aaron Karp:

Well, I think it's worth pointing out, ACI World has pointed out that the volume of traffic, while very high, is still below what was expected before the pandemic. So the volume was expected, of passengers globally was expected to reach 10.5 billion passengers in 2024. That was before the pandemic. Now they're expecting 9.5 billion passengers in 2024.

So we hear a lot of talk about returning to pandemic levels of traffic and exceeding them and I think that's true, but I think it also should be noted that we're still behind and somewhat significantly so, a billion passengers behind, where the industry thought it would be in terms of growth before the pandemic. So I think that's one reason why demand will remain strong is because the industry is still very much catching up.

Karen Walker:

Yes. The trend is absolutely in the right direction, but as you say, if relative to where we would've been had it not been for the pandemic, there's still catch up to do. So yeah, that's a very good point. I have to also ask all of you, David sort of alluded to this, and I also said this is a notorious industry in terms of forecasting because you never know what's around the corner. But some things can just really, really throw a spanner in the works in terms of sort of air traffic demand, in particular. Obviously pandemic did, but so can wars, just things that are not expected as well as the things that we sort of anticipate, which is air traffic control congestion, weather issues, IT meltdowns at airports or airlines, those sorts of things.

So what are your thoughts on that in terms of there's also the economy as well. People have to be comfortable that they've got enough money to spend it on vacation travel, for example. And so I'd like to ask each of you about where we feel the confidence level is. Chris, could I start with you on that?

Chris Sloan:

Well, sure. I mean, obviously I think it's a great question and as you point out, you only can predict what you—you only know what you don't know. And I don't have the magic 8-ball, but certainly I think if you look politically where the world is going, yes, it's really a tale of perception versus reality. There is a perception that the economy is in some ways very poor in the US and in Europe and parts of the world, even though the numbers would suggest otherwise.

And there's been a pretty big shift politically around the world to a much more populist, different shift in terms of as we saw in Canada, we're seeing in Europe. And of course that does have ramifications particularly with our new [US] administration as we particularly bring in talk of tariffs. And there's just such a political sea change in the world that just speaking broadly, we do not operate in a vacuum in this industry. And so a lot of those things seemingly I believe could impact us in ways that may not seem so obvious today.

Karen Walker:

Correct. And by our administration, I'll just be clear, Chris is talking US, because Chris is based in the Miami area. Lori, what are your thoughts in terms of how sensible is it to be that confident that everybody's going to keep flying in big numbers this year?

Lori Ranson:

Yeah. I agree with Chris. It's all about the political undertones worldwide. And that can actually trickle to, you mentioned ATC, so obviously in the US there are air traffic controller shortages that airlines are facing.

And with a different administration taking control with the aim to kind of reduce government bloat and government spend, there's a lot of uncertainty over staffing levels and how the administration will handle that. So I think if you can't have the capacity to operate in the way that you would like, then the byproduct would be you're probably going to have to fly less to manage customer expectations.

Karen Walker:

And that will be an interesting one to see. I just also wonder about both passenger patience and regulatory patience now, and that's not just America, but elsewhere, that because we've seen some of these things repeat over and over— of problems, not all of them by any means cause the airlines, but people tend to, particularly governments tend to, take it out on the airlines. And I just wonder whether we might see some more of that this year. Particularly if you get to the first big European vacation holiday, the Easter period, and things go wrong. It could be interesting to see. Also related to this is the safety side and the difference of course almost overnight that wars can make in terms of not just where airlines can fly, but people's confidence to fly.

Obviously, we had the Azerbaijan Airlines crash on Christmas Day and we're seeing the accusations that that was brought down by Russian military. So that will have certainly one effect, won't it? On airlines having to reassess where do they fly, right? And that's a lot of that will come from their insurance company's decisions, as well as from legal. But it also will affect again, people's decisions about how they're comfortable with flying. Does anybody have any thoughts on that? David, could I just ask you first?

David Casey:

We're seeing geopolitics play a bigger role in where airlines are flying. If you look at the Russia overflight situation, particularly with European carriers, we're seeing them really restrict and limit their flying into China because they're obviously having to fly around Russian airspace that is increasing operational costs and the length of route.

So, towards the end of 2024, we saw British Airways, Lufthansa, Virgin Atlantic, pulling back on those routes. BA canceled London, Beijing. Virgin canceled London, Shanghai, and Lufthansa halted Frankfurt, Beijing as well. And I think on the flip side, you've got Chinese airlines like China Eastern, China Southern, Air China really expanding the European networks and then taking advantage of their ability to overfly Russia.

So I think geopolitics is definitely influencing route networks and I think in the US we're seeing that as well. So there's a flight cap currently between the US and China. It's 50 flights per week for both US and Chinese airlines, meaning that capacity between the markets is still about 70% lower than pre-pandemic levels.

And I think given the political tensions and the previous US administration stance or the Trump's administration stance on China, it's unlikely we're going to see too much progress in lifting those restrictions this year. So I think particularly China, Europe and China, US market is going to remain subdued particularly for those international carriers.

Karen Walker:

Right. So really what you're saying there, David, is that whether there's demand or not from the passenger perspective, whether they're confident or not or airlines are going to be forced to make decisions in terms of capacity restriction. Talking more expensive, costs, airline costs in particular, we're expecting to see labor costs remain really high this year, growing. Aaron, maybe you could talk to a little bit to this and Lori too, because particularly apparent in the US, the strength of the unions. Do we see that continuing Aaron this year?

Aaron Karp:

Yeah. Well, one thing I would say is IATA said that gas prices, fuel prices, are expected to be lower the coming year. And so I think if that's true, that'll be a big help for the airlines because they really can't get the labor costs down because there was just such demand as we've talked about before, coming out of the pandemic for workers and too many people had left during the pandemic.

And so the unions have taken advantage of that. And if you just look at the cost across the board, labor costs are eating up 30-some percent of an airline's cost and then you throw in fuel, and half your costs are already out the door before you've even done anything.

And so I think airlines are trying to figure out a way to generate revenue to overtake the rising costs because there's simply no way really to lower the labor costs unless you're going to lay people off, which with the demand, you don't want to do. So I think they've had to accept that the higher labor costs are now the cost of doing business post-pandemic, and they have to figure out a way to make it work.

Karen Walker:

Right. And so as you pointed out, jet fuel prices are lower now relative to where they were, say, in 23, and that's expected to continue. That would make a big difference and be able to offset not just the increase in labor costs but the increase that airlines are taking on because of sustainability initiatives. However, if something goes wrong in a big way in terms of safety, security, geopolitically that we all know the first thing that goes up in prices is oil. So then the airlines get a double whammy. Chris, any thoughts on that?

Chris Sloan:

Yeah. No, I think you're correct. I mean, there's always these black swans that are circling potentially that could drop out of the sky, and they seem to be circling with a lot of frequency as you look back at really the last 25 years, and certainly fuel there. I think specifically when you talk about costs, I mean the supply chains, it sounds like a broken record, but I mean that continues to be a significant player.

And yes, that does build in constraints and in some ways that's beneficial in creating constraints as far as capacity, which obviously gives a little more pricing power. But when you hear stories like Lufthansa delaying its [Boeing] 787 deliveries because it can't get its business product certified and they have eight or 10 aircraft sitting on the ground and 700 GTF [engine] aircraft still grounded. And Trent, now we've seen the Rolls Royce Trent leading to cancellations with BA and the DFW in Miami, and airBaltic pulling thousands of flights off schedules.

I mean, now, a lot of these supply chains that we thought were going to right themselves seemingly are getting worse and now it's literally showing up. The proof is now in the pudding, and a lot of anger on top of that. And so it seems to me the people that are benefiting are maybe the MROs and the leasing companies, but eventually that does start to, is hitting the bottom lines.

Karen Walker:

There's huge frustration on this issue, the whole supply chain issue. And it's not just Boeing, as you've pointed out, there's the engine companies, it's really across the whole cabin providers everywhere. And it's just, you can just sense that the temperature is close to boiling point among the airlines because it's gone on for so long.

You mentioned the MROs, there's now frustration that those companies are being accused of hoarding parts because they're concerned about their own supply and therefore it's just getting worse. Does anybody here have any feeling that it could get better this year? I mean, and in particular, in Boeing. I mean, we should be hearing some new numbers from Boeing about its delivery plans, et cetera, fairly early in the year. Anybody got any thoughts as to whether it is going to start to improve this year? Chris, I'll start with you.

Chris Sloan:

I mean, just when you think it is, it isn't. And the fact is that Boeing now we have obviously another switch at the FAA in leadership. The 737 [MAX]-7 and the -10, still real no timeframe for certification. The ramp up of the MAX and the 78, I mean we're talking about now, projections are, they'll be back to where they started maybe 10 years ago pre-COVID. I think there's the 787X, is it really 2026?

I mean, we're talking aircraft that used to take four to five years from clean sheet. That aircraft will be 13 to 14 years when it finally enters into service after it was launched. And Airbus, obviously as you mentioned, immense troubles as well, even though it looks better compared to Boeing. But so I don't know. I'm not exactly sure what that magic wand that's going to make things seemingly improve when it seems like we continue to take, as the song said, two steps, one step forward, two steps back. It's difficult.

Karen Walker:

I personally believe it's still going to be a difficult for at least the first half of this year. I don't see any magic transformation there. As Chris points out, that's adding to cost for the airlines, and its reducing their ability to bring in revenue because they were planning on one minute to have a schedule that had this aircraft, that aircraft, and now they're either having to operate more expensive aircraft to operate in terms of fuel use or just not offer the service.

Chris Sloan:

And just a corollary to that, as you talk about the future, and we talk about all these obviously new market aircraft and blue sky projects and sustainability, I mean, the credibility of these companies to launch new products and to be forward-thinking—a lot of that energy that we heard around 2020 and 21, I mean a lot of that is being sapped up by just the basic blocking and tackling of things that had occurred, kind of like the electricity you just ... you used to be able to deliver airplanes somewhat on time and without these quality issues. And so when you want to do something new, it's going to make everybody much, much more risk-reverse on all sides.

Karen Walker:

You're right, it's about trust, isn't it? There's a lack of trust. Aaron, thoughts?

Araon Karp:

Yeah. And I think one of the huge problems that Boeing has is that there are no plans right now for a new commercial aircraft. And to say that it's still on the drawing board would actually be an exaggeration because there really isn't a drawing board. With the CEO changes, they keep dropping what they're going to do in the past. The technology that they have been talking about is stuff that's going to be tested towards the end of this decade.

And so I think we're right now looking at possibly the 2040s before a new Boeing commercial aircraft comes online. And I think the company will just be listless until it has that North Star of Boeing's always been building the new aircraft, the most innovative aircraft. And right now they have no idea what they're going to do with the next aircraft. They have no idea how they're going to build an aircraft that's environmentally sustainable.

And Ortberg, Kelly Ortberg, the new CEO, has said, "Well, we've got to fix all this other stuff before we get to that." And so that's just pushing it further back. And so I think that that is one of the big problems with Boeing is they can't go to airlines and say, "This is what we're building for the future." They can't tell their suppliers, "This is what we're building for the future." And so they have this huge issue where their main thing is building new aircraft. It has always been and they have no idea of the new aircraft they're going to build.

Karen Walker:

Very good point. Again, it's that trust issue, isn't it? I would imagine that any CEO, airline CEO, if they were in a conversation with Boeing or other manufacturers for that matter about a new aircraft or new engine, they'd say, "Well hell, how the heck do I trust that this is going to happen? And even if I thought it would happen, how can I believe the schedule you're talking about?" You're right.

Lori, thoughts?

Lori Ranson:

Yeah, just to build on your point and the trust issue and how that affects day-to-day operations. If you listen to any airline commentary from management, they're saying, "Yeah, well, we expect X amount of deliveries this year, but we're building in flexibility." I mean, that's the buzzword. So there is the trust issue. And then I think that carriers have resolved themselves.

To your point, this is not going to be resolved anytime soon. So the choices we have are to keep operating inefficient aircraft, maybe pay higher leasing costs, wet lease, which is expensive. So they've accepted this as the reality. But yes, the trust issues are going to be lingering for a long time, both in regular operations day-to-day at this point in time and then in manufacturers’ ability to deliver a more efficient aircraft in a timely manner.

Karen Walker:

Let's just talk, switch gears a little bit and just talk about finally some of the changes that we could with see among airlines themselves and in particular, I'm talking about mergers, acquisitions, consolidation. There's things going already and more could be happening this year. I'm going to start with Latin America—in particular, Brazil.

Lori, there's sort of talk about consolidation potentially coming there, what's going on? Why is that there?

Lori Ranson:

So, for most of last year there were speculation that Azul and GOL, which are the second- and third-largest airlines in the country, were having merger discussions. This was against the backdrop of GOL reorganizing in chapter 11 bankruptcy protection, and GOL should exit its restructuring sometime in the first quarter. I think that's the target. So all of these discussions have been happening.

It's an interesting combination. Azul has also been having discussions with GOL's parent Abra Group, which is also parent to Avianca. I think that a combination would probably be a more formidable competitor against LATAM Airlines Brazil, which is the largest airline in the country. And given Azul's wide-ranging fleet from Cessnas to [Airbus] A330 widebodies, they could be a real challenge.

I mean, obviously could a combination in that regard gain regulatory approval and government approval? That's a big question mark. But governments can surprise, and governments cannot surprise. So I think that's something to watch out for this year in terms of what's going to happen in the Brazilian market. It's something I'm keeping my eye on.

Karen Walker:

And it's an important market and a growing market too. Very important on the aviation side. David, you're based in the UK, so I'm going to turn to you on the European side. For as long as I can remember, everybody's been saying there's a need for more consolidation across European airlines. Obviously we've got Lufthansa taking the big stake in ITA, the Italian carrier, but there's other stuff happening as well, isn't there in the scene?

David Casey:

Yeah, we saw some movement in 2024. It was more smaller, incremental steps though rather than mass consolidation. So as you said, Lufthansa acquired a 41% stake in ITA airways, the Italian flag carrier. We saw Air France-KLM as well take 19.9% stake in SAS, the Scandinavian carriers. So both deals stop short of full takeovers, but I think they show that the big players are positioning themselves strategically.

IAG on the other hand, wasn't quite as successful last year, so it's bid to acquire Air Europa fell apart because the regulatory demands were just too steep. But I don't think the story is over for Air Europa. I think we might see some movement there. There's talk of Air France-KLM potentially taking a stake in there. And I think another major focus this year might be the privatization of TAP Air Portugal. So there's probably 51% stake or more up for grabs.

And I think TAP's a prime target because of its really strong position on Europe-Brazil roots. It's already attracting interest from the big three groups, Air France-KLM, Lufthansa and IAG. And I think another one as well, perhaps this year is airBaltic. So they've been planning an IPO for a while, and I think 2025 could be the year that it, well should be the year that it finally happens.

And if it does, we might see Lufthansa or another big player taking a minority stake, which could open the door to further collaboration. So I think we're going to see some movement in Europe, but I think it's going to be among the small players and probably won't be outright takeovers. It may be more smaller stakes.

Karen Walker:

Right. So certainly we could see some movement there this year. In Asia, I'd say one of the big ones to watch is Korean Air and Asiana; the two Korean airlines are pretty much set to go now on that acquisition merger. And that's a big deal. Those two carriers have been fierce competitors for quite a while, and that will be an interesting one to watch.

I suspect it'll be run very well, and I suspect that that will just make them even more competitive against the big names in that area. So that'll be one to watch. In the United States, Alaska, Hawaiian, Spirit Airlines, the low-cost carrier, if it emerges out of chapter 11 as it plans to—whether that becomes another target for an acquisition at that point. Aaron, Chris, any thoughts on what we'll see in the US?

Chris Sloan:

I think Spirit is really the one to watch. This is going to be such a pivotal year for them and Frontier and this low-cost model in Spirit. The question is, is it worth more as parts? Obviously with the new Trump administration in the United States, we have a, the animal spirits are brewing again for M&A.

So could that prompt again another second run at Spirit for Frontier? Could leasers and debt stakeholders and debt holders decide that this isn't working and the parts of the aircraft and the engines … and there's even been talk like the gates and the rights for the South Florida market, could that open up an opportunity for another carrier to come in like a United or something?

And then you look at American and JetBlue, they've talked about, started hinting again at some kind of next iteration of the NEA. And does that lead to something potentially bigger? Because we have to see what the JetForward plan looks like. But we have definitely a more open administration it seems for consolidation. So I still think there's going to be some really interesting jump balls potentially here in the United States this year.

Karen Walker:

Yeah. And what about Alaska-Hawaiian?

Aaron Karp:

Well, I think what's really interesting is Alaska just in the last couple of weeks has announced they're moving the Narita-Honolulu A33200 flight to Seattle. So that's going to be a Seattle-Narita flight. And they've also announced that they're going to start flying from Seattle to Incheon, Seoul Incheon next year, with A330s they were using out of Honolulu.

And by 2030 they're going to have 12 long-haul nonstop widebody flights from Seattle. So I think what's interesting is that Alaska's basically taken Hawaiian and slapped on their long-haul network, and they serve 104 destinations in North America, and now they're essentially building a trans-Pacific hub in Seattle.

And I think there will still be some flights from Honolulu, but a lot of the long-haul flights are going to be moved to Seattle. And I think that really is the big interest that Alaska had in this merger, because they lack the global network and now all of a sudden they're going to be operating A330s trans-Pacific to Narita and Seoul from Seattle. And I think that you'll see more of those come online.

Karen Walker:

Right. Well, it sounds like there's no surprise. It's going to be another year with a lot happening in this industry. Certainly, I know we'll all be watching it. So, David, Lori, Aaron and Chris, thank you so much for your time. Like I say, we will all be very busy this year tracking all of this.

Thank you also to our producers, Cory Hitt and Guy Ferneyhough. And of course, a huge thank you to our listeners for following Window Seat. Don't miss us each week by subscribing to the Window Seat Podcast. This is Karen Walker disembarking from Window Seat.