U.S. passenger revenue stalls

The first drop in year-over-year passenger revenue signals a new era

Q2 2025 is shaping up to be flat in the U.S. A little less than flat, actually.

For the first time since 2020, passenger revenues for the U.S. airlines have dropped year-over-year.

They haven’t dropped a lot - less than 1% - but the trend leading into Q3 isn’t great. Until the latest quarter, Q3 2024 was the most dubious of passenger revenue growth quarters. Last summer saw just a 0.2% increase in passenger revenues over 2023. This doesn’t bode well for the coming Q3, where capacity cuts entering the fall season have been stronger than usual.

What’s going on?

A few things. First, let’s look at how the data may need to be revised upward as the latest results come in. (That’s right. We used the word “revised” because that’s what good data accuracy requires, as information comes in at different times. Just thought it was important to put that out there. No particular reason…)

Spirit has yet to file its 10Q, meaning we have to make estimates of the airline’s passenger revenues for Q3. But Spirit has also drastically cut back on capacity compared to last year, meaning revenues will be lower. How much lower? We estimate about 21% based on capacity cuts.

Also, non-public airlines are not included. This amounts to Avelo and Breeze Airways. Breeze, in particular, has been in growth mode, undoubtedly increasing passenger revenues (and overall costs). I don’t suspect this will be enough to pull the industry back into positive territory, but it doesn’t much matter. The trend is the same. Passenger revenue growth in the U.S. has stalled.

That doesn’t mean it has stalled for everyone. Allegiant, in particular, has seen a 3.9% increase in passenger revenue compared to Q2 2024, a result of the airline restarting its growth in the past 12 months.

Alaska (which includes appropriate comparisons to both Alaska AND Hawaiian last year), saw a 1.1% increase in passenger revenues while United saw similar levels.

But this passenger revenue growth has simply been fed by the airlines seeing reductions. Notably, Southwest is down 1.3% and JetBlue is down 3.8%. These represent big chunks in overall passenger revenues for the country.

What does this all mean? For one, it means revenue growth for the airlines is arriving from somewhere other than passenger revenues. For Southwest, that could eventually mean bag or seat selection fees. For others, it has been loyalty revenues (bear in mind that some of the passenger revenue recorded is from miles being redeemed, as well).

But, Q2 earnings calls have been largely optimistic. The booking lull the country saw just a few months ago appears to have subsided, at least in the booking curves. Still, capacity growth in Q3 hasn’t exactly been stellar.

Despite the summer peak, overall capacity is only up 1.8%. Meanwhile, fares have proven stubborn. Not terrible. Just stubborn. Capacity cuts don’t arrive in full force until September, and economic data is moving quickly enough to put all of it in doubt again.

The Q2 situation has evolved from hang-on-to-your-hats positive in 2022, back to normal in 2023, stagnant in 2024, to slightly negative in 2025. Not a reason to sound the alarm, but… well… different.

A quick correction about tariffs

Last week we talked about how was left out of the the elimination of tariffs and that 50% tariffs were still on the table. That has changed and is now only half-true (actually, 20% true, if you're keeping score).

Embraer will NOT be subject to the 50% tariff, but IS still subject to the 10% tariff. (At least, as of Wednesday evening, U.S. time). The precendent has been set that U.S. content is credited and ultimate tariffs are estimated at approximately 6%, depending on the customs agent.

Research published this week

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