Airline Industry Analysis: Signs of a Return to Normal

As the postpandemic air travel rebound levels off, we see signs of a return to ‘normal.’

United States air passenger growth has slowed to match overall retail sales growth as of mid-September. And while April’s tariff news brought airlines’ fortunes into question, market valuations have snapped back at the outset of Q2. We think a softening of demand as supply constraints ease would not bode well for industry profitability. Here’s how current industry trends are affecting five major airline stocks.

As investors seem interested in United’s relatively recent success or impatient with Southwest’s relative struggles, advisors can keep them grounded with a long-term perspective.

Morningstar’s Q3 North American Airlines Pulse offers a breakdown of industry-wide trends and risk factors. For a full look at North American airlines stocks, download the report.

Industry dynamics may be returning to prepandemic patterns based on several key metrics.

The available seat miles metric is the product of the number of plane seats times miles flown in a specific period. Global ASM share shows that global airlines are resuming course to reclaim capacity share from US and Canadian airlines after their initially slower postpandemic recovery.

Passenger share has remained generally stable. Southwest LUV and the Big Three—United UAL, Delta DAL, and American AAL—have seen almost no change in their collective passenger shares.

But since 2015, United has taken just under 2 points of passenger share from American. And, in the past ten years, low-cost carriers have gained 5 points from regional airlines.

Despite April’s tariff-related uncertainty, US passenger volume in 2025 closely resembles that of 2024.

Load factor, or the percentage of available seats sold to passengers, is also making a return to “normal.” US airline load factor stood at about 83% in September 2025, in line with the prepandemic era. Planes remained full with peak season load factors averaging in the mid- to high 80s across US carriers.

For more on how market trends are affecting hotels, online travel, and cruise lines, download the Travel Services Pulse report.

Passenger revenue yield metrics highlight the front lines of competition for air travel customers. Delta and United lead the pack in the US in terms of highest revenue yield.

In 2025, American has ceded pricing ground amid its loss of some corporate accounts. Two years ago, the company reduced incentives and awards to corporate travel customers using global distribution systems. The goal was to attract more direct bookings, save on commissions, and gain incremental revenue segmentation opportunities.

Customers revolted. They sent their business to United and Delta, costing American an estimated $1.4 billion in lost revenue in 2024. It undertook an “apology tour” to win back the business travel accounts it had lost. First-quarter 2025’s signs of recovery in American’s yield relative to Delta and United have not persisted.

Southwest’s yield resembles the industry average and far outpaces other low-cost carriers. The company's lowest fares offered more perks than the competition, including two free checked bags.

Southwest stuck to pricing discipline, trading some load for yield, in fourth-quarter 2024 through second-quarter 2025. The company recently introduced a new assigned seating policy and bag charges. We believe Southwest had to change its offering to compete, and we expect it to pay off eventually.

Since 2019, the airlines industry has added nearly $0.03 of structural unit costs, or operating costs per unit of capacity excluding fuel or unusual items. Updated labor and maintenance contacts are driving the cost increases.

American Airlines and Delta Airlines led the Big 4 in unit costs.

Airlines experience fuel costs more or less in lockstep. Fuel costs have been in decline since late 2022, offering airlines some pricing headroom. Overall operating fuel efficiency is more stable as new, more-efficient aircraft gradually come online.

Delta and American trail the US industry in fleet fuel efficiency, but for different reasons. Delta’s fleet includes the most regional-size jets, and half of their fleet is over 15 years old. On the other hand, American’s lower fuel efficiency is due to its prominence in the Latin America segment, with more shorter flights and fewer long-haul high-altitude cruises. Only one-third of American’s fleet is more than 15 years old.

Constrained supply and robust demand have buoyed United and Delta and favored their premium customer segmentation. While those tailwinds remain in place, the outlook remains rosy.

However, as supply constraints ease, a softening of demand would not bode well for industry profitability. We think that's particularly the case for United and Delta, which have the most at stake.

Of the five US and Canadian airlines in our coverage, none have an economic moat rating. Our Economic Moat Ratings indicate companies with lasting competitive advantages who may earn high returns on capital for years to come.

Conversely, almost all stocks in our coverage have an Uncertainty Rating of Very High:

• Southwest Airlines LUV
• American Airlines AAL
• Delta Air Lines DAL
• United Airlines Holdings UAL

And one airline in our coverage has an Uncertainty Rating of High:

• Air Canada ACDVF

The Morningstar Uncertainty Rating reflects the level of risk associated with a security’s future cash flows and earnings. The greater the uncertainty rating, the higher margin of safety investors may want around a stock’s fair value estimate. Advisors should be especially aware of a client’s appetite for risk when considering more volatile stocks.

On their own, both ratings aren’t definitive indicators and should be a part of a larger investment selection process. With Direct Platform, professional investors have access to the full breadth of our equities data and investment research tools.

Our near-term forecast remains quite rosy for most industry players, particularly premium operators.

• We believe Delta and United Airlines have successfully segmented air travelers to attract recurring premium revenue, especially in the post-pandemic environment.
• We forecast Southwest will benefit from its recent updates to merchandising and more strategic yield management.
• In our view, ongoing cost growth without ultra-premium segmentation will leave American and Air Canada behind.

As constrained supply conditions even out, we forecast a return to more-normal operating conditions, eroding airline profitability. When airplanes and personnel are no longer a constraint, we expect incremental incentives to return to the fore, leading to competition over prices and market share.

Note that the premium operators claim the lion’s share of industry profit, with low-cost and regional carriers already bordering on breakeven and even bankruptcy in the case of Spirit Airlines.

For a deeper look at our airline industry analysis, the full Q3 North American Airlines Pulse covers:

• Growth and operating margins in international markets
• International air travel trends
• Annual capacity and passenger growth forecasts
• Our top airlines stock picks