North American airlines are facing a period of softer demand concentrated in U.S. domestic leisure travel as consumers pull back on discretionary spending, Fitch Ratings said.
Fitch now expects revenue passenger miles (RPM) to be flat to modestly down year-over-year in 2025, compared to previous expectations for low single digit growth. “Domestic-focused leisure carriers with limited ratings headroom may see ratings pressure, while U.S. network carriers are better positioned to manage through a period of cyclical demand weakness,” Fitch noted.
Budget travel is expected to be hardest hit, Fitch said, noting that major airlines have recently flagged a weaker demand outlook that is concentrated in domestic leisure travel. JetBlue Airlines, Spirit Airlines and Allegiant Air all face significant pressure. Southwest Airlines has better prospects although “its exposure to leisure travel creates headwinds,” the agency noted, adding that it is cautious given the carrier’s announcement of seating and baggage policy changes, seen by many as yielding competitive advantages.
Fitch said premium segments are expected to exhibit more resilient demand. “Legacy carriers like Delta [Air Lines] and United [Airlines] are positioned to manage these headwinds more effectively than their low-cost counterparts,” it said, citing advantages such as diversified revenue streams, in particular co-branded credit card programs. “They may also benefit as weaker competitors pull back capacity and compete less aggressively,” Fitch said. American Airlines is viewed as more vulnerable to a prolonged downturn given its already weaker operating margins compared to United and Delta.
Fitch said international travel has held up well despite reports of fewer inbound visitors to the U.S., as U.S. point of sale accounts for 75%-80% of international revenue for U.S. network carriers. Corporate travel is expected to see some pullback as companies manage travel budgets amidst economic uncertainty.
Lower fuel costs should provide some margin support. Spot jet fuel prices were down roughly 20% in March and April compared to the same period last year. Jet fuel is typically the second largest cost item for airlines after labor, making up 20%-25% of total costs in 2024.
