ATPI’s Airline Industry Outlook 2025: Trends, Challenges, and Growth Projections

The global airline industry is set for a positive 2025, with capacity and passenger demand expected to exceed pre-pandemic levels. However, key challenges such as supply chain disruptions, geopolitical uncertainties, and rising operational costs continue to shape the industry’s trajectory. Throughout this article we look at the trends, challenges and growth opportunities within the global airline industry.

Capacity and Demand in 2025

Global seat capacity is projected to surpass 2019 levels, yet certain regions will struggle to keep pace. Aircraft delivery delays, supply chain bottlenecks, and grounded planes due to mechanical issues continue to restrict expansion. Airlines are adapting through mergers and acquisitions, while maintaining high load factors to offset costs. Supply chain disruptions are expected to persist into 2025 and beyond, affecting fleet availability and overall network growth.

Airline Booking Strategies and Revenue Management

To optimise revenue, airlines are refining their booking strategies. Lower booking class availability may be restricted in regions with high demand but limited seat capacity. Artificial Intelligence (AI) is increasingly being deployed to enhance revenue management, allowing airlines to implement dynamic pricing models that maximise profitability while balancing passenger affordability.

Rising Operational Costs and Airline OPEX

Airlines continue to battle rising operating costs, including wage inflation and increased maintenance expenses for ageing fleets. Delivery delays of newer, more fuel-efficient aircraft are slowing efficiency improvements, leading to higher fuel consumption and emissions. With slim profit margins averaging just $7 per passenger, cost management remains a top priority.

Jet Fuel Prices and Their Impact

The average jet fuel price is projected to rise to $115 per barrel in 2025, influencing ticket prices and fuel surcharges. Although lower oil prices could result in cheaper fares and increased demand, the ultimate effect will depend on airlines’ hedging strategies and their capacity to expand fleets, which remains constrained by ongoing supply chain issues.

Geopolitical Challenges Affecting Airlines

Geopolitical instability will continue to disrupt airline operations, particularly in regions where airspace closures and overflight rights withdrawals impact flight routes. Airlines are forced to take longer routes, increasing fuel costs and contributing to airfare inflation. For instance, the European market is still struggling with restricted access to Russian airspace, forcing major carriers to reroute long-haul flights to Asia.

Sustainability and Emissions Reduction

Sustainability remains a crucial focus, with airlines investing in Sustainable Aviation Fuel (SAF) and carbon offset programmes such as CORSIA. However, compliance with new regulatory requirements has led to increased costs, some of which are being transferred to travellers. A major airline group has implemented Environmental Cost Surcharges (ECS) of up to €72 per flight since June 2024, reflecting the financial burden of sustainability initiatives.

Regional Capacity Challenges

By the end of 2024, several key aviation markets will still be operating below 2019 capacity levels, affecting global trade and connectivity:

• Southeast Asia: -13.1%
• Eastern Europe: -8.6%
• Southern Africa: -17.0%
• Southwest Pacific: -4.5%

China’s slow market recovery, the ongoing Ukraine conflict, and airline losses in Southern Africa are among the major factors contributing to this lag. Additionally, key carriers in the Southwest Pacific, such as Qantas, Air New Zealand, and Virgin Australia, are facing supply and maintenance challenges, further delaying full recovery.

Global Air Connectivity Trends

Passenger traffic remained robust in 2024, and 2025 is expected to see continued growth, albeit at a slower pace as all regions exceed pre-pandemic levels. Both domestic and international air connectivity increased significantly in the first three quarters of 2024:

• Domestic Connectivity: Reached pre-pandemic levels in 2023 and grew by an additional 7.7% YoY in 2024 (excluding Africa).
• Asia-Pacific Growth: The largest air passenger market saw domestic air connectivity rise by 13.8% YoY, reflecting the delayed post-pandemic reopening of key markets.
• International Connectivity: Surged by 23.7% YoY, returning to 2019 levels. The Asia-Pacific region led this growth with an extraordinary 52.3% YoY increase. Other regions also saw double-digit gains, ranging from 10% to 14% YoY.

Aircraft Delivery Delays and Fleet Ageing

Aircraft deliveries have been significantly impacted by the COVID-19 pandemic and ongoing supply chain constraints. Since 2018, deliveries have dropped by 50%, leaving a backlog of 17,000 aircraft in 2023. The average age of the global fleet has increased from 13 years in 2018 to 14.6 years in 2023. While orders surged to 4,745 in 2023, delivery delays continue to hinder capacity expansion and efficiency gains.

Middle East Airlines Benefitting from Airspace Closures

Middle Eastern carriers have capitalised on European airlines’ restricted access to Russian airspace. Despite geopolitical tensions in Gaza, Gulf carriers have remained largely unaffected and continue to set ambitious growth targets for 2025. Their ability to retain direct routes to key Asian markets has strengthened their competitive position against European airlines facing rerouting challenges.

Ultimately, airline industry’s outlook for 2025 is a mix of strong passenger demand, capacity constraints, rising operational costs, and geopolitical hurdles. While international air connectivity is recovering, challenges such as fuel price volatility, sustainability costs, and aircraft delivery delays remain pressing concerns. Airlines must continue to innovate and adapt to these evolving conditions to sustain profitability and ensure long-term growth.