Airline Earnings At Risk As Demand Dips Amid Weak Business Travel, Low Transborder Traffic, DOGE Cuts

The airline industry is facing a challenging landscape as demand for air travel dips amid weak business travel, low transborder traffic, and potential cuts to governmental air travel demand due to DOGE. These factors are putting significant pressure on the earnings of major airlines like American Airlines, United Airlines, and Delta Air Lines. The recent trends in transborder freight, particularly the 8.2% increase in January 2025, indicate a robust demand for goods and services across North American borders. However, the fluctuating nature of transborder freight can pose risks to these airlines. For example, the 0.9% decline in transborder freight in August 2024 from August 2023 highlights the volatility in demand.



American Airlines reported record fourth-quarter revenue of $13.7 billion and full-year revenue of $54.2 billion in 2024, driven by strong demand and capacity adjustments. Similarly, United Airlines and Delta Air Lines have also seen strong financial performance, with United Airlines reporting record-setting financial performance in the second quarter of 2023 and Delta Air Lines achieving a 9.1% pre-tax margin in the fourth quarter of 2023. However, the significant drop in business travel and the potential impact of DOGE cuts on governmental air travel demand are putting pressure on these airlines to adjust their pricing and capacity strategies to maintain profitability.

To mitigate these risks, airlines can employ several strategies:

1. Capacity Adjustments: Airlines can adjust their capacity based on demand forecasts. American Airlines, for instance, has been successful in adjusting capacity to meet demand, as evidenced by their record revenue performance in 2024. This strategy allows airlines to optimize their resources and avoid overcapacity during periods of low demand.

2. Diversification of Revenue Streams: Airlines can diversify their revenue streams by expanding into new markets or services. For example, American Airlines' exclusive 10-year co-branded credit card partnership with Citi is expected to unlock even more value for AAdvantage® co-branded and Citi-branded cardmembers, providing a stable revenue stream.

3. Operational Efficiency: Improving operational efficiency can help airlines reduce costs and improve profitability. Southwest Airlines, for instance, has been working to accelerate and exceed its 2027 $500 million cost reduction target, supporting a 2025 CASM-X exit rate in the low-single digits. This focus on cost reduction can help airlines maintain profitability during periods of fluctuating demand.

4. Strategic Partnerships: Forming strategic partnerships with other airlines or logistics companies can help airlines mitigate risks associated with fluctuating demand. For example, American Airlines' partnership with Citi and United Airlines' co-branded credit card agreements can provide additional revenue streams and customer loyalty.

5. Data-Driven Decision Making: Utilizing data and analytics to make informed decisions about capacity, pricing, and route planning can help airlines better manage fluctuations in demand. For instance, American Airlines' strong operational results, despite extreme weather and other challenges, demonstrate the airline's ability to recover from disruptions and maintain operational reliability.



In conclusion, while the recent trends in transborder freight present both opportunities and challenges for major airlines, employing strategies such as capacity adjustments, diversification of revenue streams, operational efficiency, strategic partnerships, and data-driven decision making can help these airlines mitigate the risks associated with fluctuating demand and maintain strong financial performance.