Driven by global macroeconomic growth and a boost in consumer spending, the worldwide airline industry closed out 2024 on a positive note. According to our Airline Economic Analysis — now issued quarterly, with expanded global data and analysis — airline revenue grew faster than GDP. Worldwide capacity increased 4.1%, with 5.2% revenue growth and an operating margin of 8% for the carriers in our study. A sharp 22% decline in jet fuel costs helped offset rising expenses.
However, with rising non-fuel costs and softening demand in both passenger and cargo sectors, airlines were already tinkering with business models to capture additional revenue opportunities. As we face an uncertain 2025, maintaining fiscal discipline and flexibility will be crucial.
In this edition of our Airline Economic Analysis, we report on fourth-quarter results across four global regions after analyzing data on revenue, capacity, and costs for full-service carriers (FSCs) and value/low-cost carriers (LCCs). We also dig into how airlines are managing capacity, explore the new normal for the industry in the US, and highlight key trends for all carriers to watch in the year ahead.
Decline in fuel costs drove margin growth as non-fuel costs rose
The marked drop in jet fuel costs stood in contrast to the increase in non-fuel expenses. The decline allowed airlines in all regions except North America to see operating cost improvement. Global cost per available seat-mile (CASM) declined 0.6%, contributing to a 2-point increase in margins.
Although margins increased overall, there were notable geographical differences. Latin American carriers recorded the largest operating margin at 16.2% — primarily due to a CASM decline of 12.3% — followed by Asia-Pacific at 9.2%. European airlines produced a margin of 5.4%, up 4.4 points.
In North America, revenue per available seat-mile (RASM) increased by 4.3% and CASM was up 3.9%. Capacity management and revenue growth — operating earnings increased 12% — led to slight growth in margins of 0.4 points.
Full-service carriers saw higher profits while low-cost carriers tweaked offerings
With strong business and premium travel in 2024, full-service carriers had the primary challenge of managing costs to achieve margin growth. Latin America was the industry leader in operating margins for both full- service and lower-cost carriers. FSCs had higher profits, while LCCs were slightly in the red.
FSCs in North America saw margins flat at 9%, while LCCs returned to profitability on the strength of cost containment — operating earnings increased nearly 32%. In the Asia-Pacific region, it was business as usual for FSCs. Operating expenses grew slightly faster than revenue and capacity increased by almost 9%. Value carriers were unable to match revenue growth with capacity growth.
Both FSCs and LCCs in Europe were able to increase capacity and revenue substantially during the quarter. The airlines in the region experienced expense growth well above the worldwide average.
Airline capacity rose as travelers returned post-pandemic
As the pandemic recedes further into the past, consumers returned to traveling for both business and pleasure, and both domestically and internationally. Global capacity rose about 4% in the fourth quarter of 2024.
In North America, capacity growth of 2.5% was the result of more aircraft flying despite a decline in seats per departure and stage length. Fleet growth also drove capacity growth in Latin America.
Capacity growth in Europe slightly outpaced fleet growth due to an increase in average seats and stage length. And in Asia-Pacific, restoring existing fleets to more productive levels helped airlines achieve capacity growth of 8.7%. An increase in utilization and high rates of growth in new city pairs and itineraries compared to last year reflect the region’s continued recovery.
Defining the new normal for the US airline industry
History offers some context to 2024 conditions in the industry. Following the pandemic, industry revenue mimicked the trajectory of the GDP in 2022, indicating a recovery. But in line with previous black swan events, such as the terror attacks of 9/11 in 2001 and the 2008 financial crisis, industry revenue is proportionately lower now to GDP than it was prior to the pandemic.
Digging deeper, we see that capacity growth has downshifted from recovery mode and should align more closely with GDP to maintain RASM growth. Industry revenue gains are due primarily to premium cabin and fare growth against a backdrop where high- income households are driving consumer spending. Full-service carriers have been better positioned to leverage revenue growth to offset cost inflation.
The lower-cost segment of the industry, particularly in North America, remains in flux. Value carriers are adapting their business models to better align with consumers looking for more choice and convenience.
An uncertain outlook for the airline industry in 2025
Signals point to economic volatility through the year ahead that will impact the bottom line of airlines both on the cargo and passenger side.
Revenue recovered in 2024 to its new normal from the pandemic years, and future growth is expected to align with the GDP. However, uncertainty in early 2025 has the potential of negatively impacting growth. Airlines weathered their most severe crisis ever during the pandemic, and will need to be nimble to adapt their networks and offerings to changing conditions.
Shaping demand through lower pricing appears difficult with current cost structures. Instead, airlines are seeing revenue growth by adjusting their offering around demand, including providing consumers more variability across seasons, days, and time. This will increase pressure on cost and operability, which will need to balance out.
The overlap between full-service and lower-cost carriers increases as both shift focus toward similar consumers. FSCs are moving more into leisure markets with product differentiation, and LCCs are expanding product offerings and adjusting pricing. This increased competition will further evolve business models.
Whether demand for premium leisure travel will continue is unclear. With a large amount of price-sensitive demand no longer profitable, carriers will wait to see if potential growth in consumer income will tip the balance. In response to the shifts, the industry is looking to consolidation, but regulatory reaction so far has been mixed.
