US airlines reap higher airfare benefits as consumers happy to spend

U.S. airlines continue to enjoy their renewed mojo as robust demand for premium travel and reduced capacity boosts airfares, signaling consumers' willingness to spend on experiences in favor of goods. 

While consumers have chosen to switch to cheaper alternatives for everything, ranging from cheeseburgers to apparel, they continue to spend on airline tickets. 

Americans have taken to the skies in record numbers, coinciding with a slump in capacity as airlines slash unprofitable routes. This has given airlines increased pricing power, bolstering the industry's earnings outlook. 

Airfares in the U.S. rose 7.9% in December compared to a year ago on an unadjusted basis, as travel demand remained strong around the holidays. 

"The U.S. consumer is financially healthy and continues to prioritize spending on experiences," said Delta (NYSE:DAL) chief executive Ed Bastian on the company's fourth quarter earnings call. 

Bastian noted the actions taken by U.S. carriers to improve their financial health, stating that Delta (DAL) is "on-track to deliver the best financial year in our history with revenue growth and margin expansion driving record profitability" in 2025. 

After plunging during the Covid-19 pandemic, airfares surged in 2022 as travelers returned to travel with a frenzy, a phenomenon dubbed as revenge travel. But prices took a hit when airlines expanded capacity and entered popular routes. 

Now, a steep reduction in airline seats in the domestic market has driven up ticket prices. Chicago-based United Airlines (NASDAQ:UAL) said it is seeing strong demand for travel across all geographies, with the company expecting double-digit pre-tax margins in 2025. 

Consumers are also willing to spend more on luxury, with a rise in the sale of premium tickets. United Airlines' (UAL) fourth quarter premium passenger revenues increased 10% year-over-year, American Airlines' (NASDAQ:AAL) and Delta's (DAL) jumped 8%, and Alaska Air's (NYSE:ALK) rose 11%. 

United Airlines (UAL) sees "no change in consumer behavior seeking out increased premium experiences," while Delta (DAL) noted that premium seats formed the majority of its capacity addition. 

Global airlines body IATA sees industry-wide 2025 revenue of over a trillion dollars along with record passenger numbers, even as airlines struggle with securing new planes. 

IATA expects the airline industry to achieve revenue of $1.007 trillion this year, compared to $964 billion in 2024.

Airline stocks: American Airlines (AAL), Delta Air Lines (DAL), Southwest Airlines (NYSE:LUV), United Airlines (UAL), JetBlue Airways (NASDAQ:JBLU), Alaska Air Group (ALK), Allegiant Travel (NASDAQ:ALGT), Spirit Airlines (OTC:SAVEQ), Mesa Airlines (NASDAQ:MESA), SkyWest (NASDAQ:SKYW), Sun Country Airlines (NASDAQ:SNCY), and Frontier Group (NASDAQ:ULCC).