Summer is here, which for some means holidays.
For the Third Bridge Aviation sector analysts, however, this is prime time for poring over data and interviewing experts as we look back over Q2 and take a forward look at how the industry will fare in Q3. Who needs the beach anyway…
Q2 2025 has been a turbulent quarter both globally and in the US, with the new administration in the White House spending recent months engaged in tariff-related challenges. Earnings season has seen almost every airline withdraw guidance in light of the economic uncertainty. Compounding this, air traffic control (ATC) issues resurfaced once again, this time focused on Newark International, one of the key hubs for United Airlines.
Scott Kirby, United’s CEO, during an appearance on CBS News on 11 May, forcefully addressed the ATC issue, insisting that flying was safe. From a broad industry perspective recent safety-related issues do not appear to have negatively impacted travel demand. The broader economy has been the biggest driver of air travel demand, and while not as robust as anticipated, it is still growing.
Looking at United more broadly, the experts we have spoken to highlighted the company’s agility in successfully managing the challenges that have come their way. The company has proactively reduced capacity, but it has become more efficient by retiring ageing planes and replacing them with newer, better aircraft. The updated aircraft has allowed United to offer more premium seats, which has been the big driver of industry growth.
United also has a compelling loyalty program and carries lower execution risk than its peers. However, the reported tie-up with JetBlue could be a distraction from their core strategy and is likely to take up to five years to fully integrate, according to our experts.
In complete contrast, Third Bridge experts noted that, while American Airlines has an enviable loyalty program, they estimate its 2023-24 shift in commercial strategy came at a cost of US$1.5bn in revenues. American Airlines has also lost out on corporate accounts, notably in Chicago, one of the key industry hubs. Over the next 2-3 years, the expansion in Dallas creates an opportunity for American Airlines to regain some market share, but the company is facing the same economic uncertainty with an undifferentiated product.
Delta Air Lines has benefited from American Airlines’ troubles, and it has several key elements that our experts believe will lead to further success in today’s environment: loyalty, reliability, international routes, and premium offerings. Delta Sky Miles is arguably the most valuable loyalty program in the industry. And despite the CrowdStrike outage last summer, Delta has bounced back from every disruptive event to exceed expectations. Third Bridge experts noted that the company’s operational reliability has improved since the COVID-19 pandemic, which is yielding positive results. Our experts also highlighted that International markets represent a growth opportunity for Delta, and their diverse, more modern fleet has enabled the carrier to focus on the highest margin customers.
The market for Low Cost Carriers (LCC’s) will likely remain more uncertain. While the LCC’s are trying to increase premium options alongside their established offerings, execution risks remain high, and cost inflation problematic. Lower fuel prices are a tailwind in 2025, but the trio of United, Delta, and American have made inroads in the domestic leisure market. Operational issues have far greater impact at this end of the market. The jury is still out on how successful Southwest’s bag fees will be, with the summer travel season being the proving ground.
In summary, at the outset of the year, it was widely reported that 2025 was expected to show growth in the airline industry. However, as we approach the midpoint of the summer travel season, our experts suggest the industry will experience a period of stagnation with limited visibility beyond a few months. Airlines modified their plans in response to the tariff turmoil of Q2.
Which leads to a more cautious outlook for the start of Q3, mirroring the wider economic outlook, but passenger data has continued to show strength. The airline sector has proved to be resilient in the post-pandemic world. The coming months will tell if that resilience can continue.
