U.S. Airline Industry Braces for Turbulence as Fuel Costs Rise and Demand Softens

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America’s airline industry is navigating the peak summer travel season facing fresh headwinds—both literal and financial. Despite expectations for robust summer traffic, carriers are confronting a challenging operating environment defined by elevated fuel costs, fading revenue momentum, and persistent uncertainty around international demand.

Goldman Sachs this week sharply reduced its second-half 2025 outlook for the U.S. airline sector, cutting its full-year net income forecast by 14% to $6.3 billion. The bank pointed to a “more pronounced impact due to the recent run-up in jet fuel prices” and a softening in revenue per available seat mile (RASM), particularly for the September quarter.

While airlines have been aggressively paring back capacity—Goldman notes nearly 200 basis points of industry-wide cuts in recent weeks—those reductions have not been enough to buoy fares. “Demand continues to run below supply even as we move into peak summer season, which we believe is putting pressure on fares,” analysts Catherine O’Brien and Jack Ewell wrote in the June 30 note.

Indeed, revenue trends have deteriorated despite the seasonally strong travel period. Goldman now expects September quarter RASM to fall 3.0%, worse than the prior forecast of a 2.3% decline. The investment bank also warned of downside risk to consensus earnings expectations for most carriers, singling out American, JetBlue, and Southwest as particularly vulnerable.

The pressure is mounting as international travel flows remain uneven. Data from the National Travel and Tourism Office showed overseas visitor arrivals to the U.S. declined 11.6% in March, a figure that has weighed on transatlantic bookings and revenue forecasts. Though TSA data suggests U.S. outbound travel has been resilient, the gap between foreign and domestic demand is creating a drag on key international routes.

J.P. Morgan’s Jamie Baker noted in a May 29 research note that while the macro outlook has turned more bearish, U.S. airlines still maintain strong liquidity and capital flexibility. “We think the market fails to appreciate the flexibility larger airlines have to raise capital and avoid the restructuring fate so commonplace in prior downturns,” said Baker, U.S. Airline and Aircraft Leasing equity analyst at J.P. Morgan.

Still, airline equities are responding to a world where post-pandemic travel patterns remain in flux. “Consumers and businesses could live without air travel for extended periods of time if forced to,” Baker added, referencing lessons from the COVID era. Even premium leisure travel—a key driver of post-pandemic recovery—faces new tests amid a shifting economic backdrop in both the U.S. and Europe.

The remainder of the summer travel season may offer further clues as to whether carriers can maintain pricing power in a fuel-constrained, demand-fragmented market—or if more turbulence lies ahead.