If the past decade has taught us anything, it’s that the U.S. is not representative of the world. And yet, the country is home to the best aviation data available on passenger demand and fares - and last year it got four times better.

But we do look closely at how the individual nuances of the U.S. market are moving, because the world’s largest market is now a leading indicator of factors we’re seeing in other markets. This is a post-COVID phenomenon, due largely to the rapidity of the recovery. Generally, markets recovered west to east following COVID, with U.S. and Latin American markets returning quickly while other regions continued to deal with prolonged international flight restrictions and even lockdowns.

The Americas also saw the ceiling of the COVID recovery first, running into overcapacity challenges well before other regions.

The point is: it matters to global aviation markets what happens in the domestic U.S. market - not because it dictates other regions, but because the global macro trends after COVID are seen first in the U.S.

And we have amazing data.

And fares are up.

And passengers are down.

Consider that for a moment: The U.S. domestic market just experienced a year of incredible change, with a major low-cost provider navigating bankruptcy before finally exiting, spiking fuel prices before settling, then re-spiking, oh, and a World Cup.

The passenger growth that has only turned negative during downturns following 2001, 2008, and 2020 just turned negative without a downturn. But fares didn’t - and because of fares, overall revenue continues to climb.

Things just shifted in the market that has been signaling shifts.

Certainly, nuance matters. The slow decline and ultimate exit of Spirit has shown just how powerful competition is. On a year-over-year basis, Q2 fares are up 17% on routes not served by Spirit in Q2 2025. But for those routes served by Spirit, fares are up almost 30%. Passengers? Negative even without Spirit presence last year. On the routes Spirit served? Down almost 10%. That is a big shift, and a solid indication of the power of competition.

But the big shift in the U.S. isn’t the loss of Spirit (though airlines are certainly happy to take advantage). It’s the shift in elasticity.

We expected fares to drop when fuel spiked.

(Specifically, we expected fares to drop unless there was a reduction in capacity, which there definitely was when Spirit left and airlines cut flying, but we’ll play along for the sake of the narrative).

Why? Because airlines don’t set prices based on costs. They set capacity based on costs. And yet, despite the capacity cuts, the loss of Spirit, and the reduction in passengers, fares still rose higher than we expected.

The above chart shows the context of what happened. Anything below the traditional growth line can be considered elastic (as in, passengers REALLY care about fares), while anything above can be considered inelastic (don’t care about the price, I’m gonna fly!)

Q2 saw a massive rise in fares for a moderate decrease in traffic. This has happened before, just not to this extent. Q2 2010, Q2 2006, and Q1 2023 were all recovery years (2006 included the exit of Independence Air, while 2010 included a fair amount of bankruptcy cuts from legacy airlines).

The three quarters leading up to Q2 all show a reduction in passengers with an increase in fares - the least common quadrant the market typically shows outside of a downturn.

What does this mean? It means something just changed. The continued long-term growth of the domestic passenger market just experienced an inflection point, and airlines are ok with it.

And while the notion that the fare increases are purely a function of March fuel spikes is certainly popular, it was merely a blip on the longer-term trend. Fares have been rising steadily since July of last year.

Passengers? Not-so-much.

It wasn’t a fuel situation. It was (dare we say) capacity discipline, whether voluntary or financially involuntary - and we’re not just talking about Spirit.

So what does this signal for the rest of the world, if the U.S. remains a signal of things to come? It signals that growth is being traded for fares.

That’s a problem.

If you’re one of our airline or airline investor subscribers, you’ll probably think we’re crazy. We are, to be certain, but not because of that.

The entire industry has been built on growth. Aircraft production plans assume at least a continual 5% growth trajectory until forever or the invention of safe teleportation (whichever comes first). When GDP grows, so too grows the need for seats. Only the U.S. just broke that correlation.

This is a trend we are starting to see worldwide. Growth trends have not reverted to pre-COVID GDP connections. Growth has returned, but not at the expected rates.

The assumption has been that the aircraft shortages were artificially limiting growth, and so fares go up. That’s not untrue, necessarily, but consider that the U.S. has had sufficient domestic aircraft for at least two years, and we’re still seeing fare harvesting over growth. Meanwhile, costs have risen. And we’re not just talking fuel costs. Growth is now more expensive than just charging fewer people more.

But consider the opposite supply dynamic. What happens when production rates increase, the MAX 10 finally gets certified, and the still-improving GTF situation becomes an already-fixed situation?

Things have changed.

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