Airlines Increase Pricing Flexibility, Indicating Higher Fares for 2025

 Off-season travel, especially to Europe, has become a significant highlight for major U.S. airlines.

Travelers walk through O’Hare International Airport in Chicago on Dec. 20, 2024.

Jan. 25, 2025, 5:46 AM GMT+6 

Airlines are poised to raise airfare this year due to strong demand, even in the off-season, and limited capacity growth, giving them more control over pricing. According to fare-tracking platform Hopper, January's average domestic "good deal" fare in the U.S. is $304, marking a 12% increase from last year, with prices expected to remain higher through at least June. Delays in the delivery of new aircraft from Boeing and Airbus, air traffic limitations, and financial pressures have restricted airlines' ability to expand routes, which has contributed to fare hikes. Spirit Airlines, which filed for Chapter 11 bankruptcy protection in November, has drastically reduced flights to cut costs.

American Airlines projected a revenue increase of up to 5% for the first quarter compared to the same period last year, despite its capacity remaining flat or potentially decreasing by as much as 2%. "We do expect airfare to come up," said American Airlines CFO Devon May, though the airline also forecasted a larger-than-expected loss for the first quarter due to rising costs, including higher wages from new labor agreements.

Breeze Airways, a newer carrier, reported its first quarterly operating profit for Q4, with founder David Neeleman, who also founded JetBlue Airways, noting that conservative industry growth is proving beneficial. "The tide is lifting a lot of boats," he said, adding that the momentum seen in Q4 is continuing into the first quarter.

Alaska Airlines expects "high single-digit" revenue growth for Q1, with capacity rising no more than 3.5%. United Airlines also shared positive forecasts, particularly for domestic travel, noting that the domestic pricing environment is improving as weaker airlines scale back unprofitable flights. United's Chief Commercial Officer, Andrew Nocella, pointed out that fewer fare sales and lower discounts indicate airlines are prioritizing profitability.

Delta Air Lines, which kicked off earnings season earlier this month, forecasts a revenue increase of 7% to 9% for Q1, with strong growth in unit sales across its global network. Off-season travel, especially to Europe, has been a significant revenue boost for U.S. carriers. Delta President Glen Hauenstein noted that trans-Atlantic revenue is expected to rise in the mid-single digits, driven by robust demand from U.S. travelers and extended off-peak seasons.

Carriers are also seeing an uptick in customers purchasing pricier, roomier seats. Both JetBlue Airways and Southwest Airlines will report Q4 results and offer their outlook for 2025 next week, as they aim to increase revenue by introducing more premium seating and additional amenities.