TravelPractice

TheStateof

Aviation2025

May2025

Copyright?2025McKinsey&Company.

Allrightsreserved.

Coverimage?JonathanKitchen/GettyImages.Allinteriorimages?GettyImages.

Cantheaviation

industrysoarto

newheights,orwillheadwindsslow

itsprogress?

Contents

Chapter1:Cantheglobalairline

industrycontinueitsclimb?4

Theairlinesectorhadadecent

yearin2024.Isitfinallycrackingthevaluecreationformula?

Chapter2:Arelow-cost

airlineslosingaltitude?14

Low-andultra-low-costairlines

havetendedtoearnbetterreturnsthanfull-servicecarriers,buttheirperformancehasslowedinthe

UnitedStates.Aretherelessonshereforglobalairlineleaders?

Chapter3:Theeightmyths

ofairlineretailing22

Airlinesarerethinkinghowthey

selltheirofferingsandservicetheir

customers.Understandingcommonmisconceptionsaboutairlineretailingcouldhelpaccelerategrowth.

Chapter4:Howtomodernize

airlineplanning34

Outdated,nonintegratedapproacheswon’tflyanymore.Airlineplanning

couldbenefitfromanoverhaul.

Chapter5:Howsevereis

theaircraftshortage—and

whathappensnext?40

Reboundingairtraveldemandisbumpingupagainstaconstrained

supplyofnewaircraft.Assessingthesizeofthisgap—andhowitcouldgroworshrink—canhelpinformsolutions.

Acknowledgments47

TheStateofAviation20251

Theaviationindustryisenjoyingawelcomeboostfromresurgentpostpandemicair

traveldemand.Butthereremainpotentialstormstonavigate.Thisreportanalyzestheindustry’scurrenttrajectorywhilepointingtowardpossiblefuturelandingspots.

Howmighteconomictrendsandgeopoliticaleventsshapeaviation?Whatproduct

offeringsaremostlikelytofindfavorwithairtravelers?Howcanairlinesadjusttheirbusinessmodels,plantheirschedules,andcalibratetheirfleetsinwaysthatachievetheircommercialandoperationalgoals?

Duringamomentthatcombinesgreat

promisewithgreatuncertainty,it’s

crucialforaviationstakeholderstogroundtheirdecisionsinsolidfacts,careful

analysis,andhard-earnedinsights.

2TheStateofAviation2025

TheStateofAviation20253

41%

ofairlinescreatedpositivevaluein2024

+

+

+

+

–1.1%

ROICforNorthAmericanlow-costairlinesin2024

$$$$$

34%

relativeimportanceofpriceasadriverforairtravelers’bookingchoices

$100

costtoairlineforeachadditionalminuteanaircraftisdelayed

2,000

globalaircraftshortageasaresultofincreased

demandanddelayeddeliveries

Chapter1

Cantheglobal

airlineindustry

continueitsclimb?

TheStateofAviation20255

Theairlinesectorhadadecentyearin2024.Isitfinallycrackingthe

valuecreationformula?

Runninganairlineisn’tforthetimid.Weatherevents,infrastructurefailures,andfickle

passengerdemandcanmakeanalready-toughbusinessevenmorechallenging.Asthisarticlegoestopublication,

economicuncertaintyandgeopoliticaltension

areboththreateningtoaltertravelflows,pilingyetmorestressonairlineexecutives.

Thesebusinesschallengesshowuponledgersheets.Since2005,we’veanalyzedthefinancialperformanceoftheaviationvaluechain.Ourresearchdemonstratesthat,comparedwithotherasset-intensivesectors,airlinesinaggregatehavealongrecordofmixingpositivegrowthwithnegativeeconomicprofit.

Butrecentresultssuggestthatthislosingstreakcouldatlastbenearinganend.Manycarriersandmultipleregionsperformedwellin2023,and2024dataindicateanotherdecentyear.

Airlinesthathavereporteddetailedfinancialresultsasofthetimeofthiswritingrecorded,asawhole,aneconomiclossof$5billion(or–0.6percentofindustryrevenue),but41percentoftheairlineswetrackearnedtheircostofcapital.Consideringthestateoftheindustrypriortothe

COVID-19pandemic(airlinesrecordeda$30billioncollectiveeconomiclossin2019),thisisaremarkablefeat.

What’schangedfortheindustry?Arethesechangesstructural?Whatcanindividualairlineslearnfromtheencouragingresults?Andwhatcouldderailtheindustry’sprogress?

Theairlinesectorin2024

Forthepurposesofthisanalysis,welookatvaluecreationfromaninvestor’sperspective.Our

measureiseconomicprofit,whichconsidersthealternativereturnfromequal-riskopportunitiesavailabletoinvestors.It’scalculatedbysubtractingweightedaveragecostofcapital(WACC)

fromROICandthenmultiplyingbyinvestedcapital.Positiveeconomicprofit—whenROICisaboveWACC—signalsthatacompanyorsectoriscreatingpositivevalue.

AirlinesectorROICinaggregatehasbeenbelowitscostofcapitalsinceatleast1996,whichistheearliestdatapointinourresearch(Exhibit1).Manyofthestructuralfactorsunderlyingthispoorresultremain:Airlinepassengersaretypicallyverypricesensitive,theindustryfeatures

strongcompetitionpairedwithlowbarrierstoentryandhighbarrierstoexit,andtheregulatorylandscapecanposechallengestoconsolidation.Butin2023and2024,resultsimproved.The

Exhibit1

Theglobalairlineindustry’sROICapproacheditscostofcapitalin2023and2024.

GlobalairlineindustryROIC1andmedianWACC,2%

10

5

0

–5

–10

–15

MedianWACC

ROIC

20002005201020152020

Note:2024?guresbasedonairlinesthathavereported?nancialdataatthetimeofpublishing.1Includinggoodwill.

2Weightedaveragecostofcapital.

Source:Bloomberg;Companyreports;IATA;S&PCapitalIQ;TheAirlineAnalyst;McKinseyaviationvaluechainmodel

McKinsey&Company

annualdifferencesbetweenROICandWACC,atthesectorlevel,wereamongthenarrowestweveseeninthehistoryofourresearch.

Regionalperformancevaried.LatinAmericaandtheMiddleEastandAfrica(forwhichonlya

limitedsetofairlineshadreporteddataatthetimeofpublication)werevaluecreating.Europe

andNorthAmericarecordedmarginallosses.Asia–Pacificaccountedforthebulkofthesectorsnegativeresults.

Butsectoraveragesdonttellthewholestory.Thenumberofvaluecreatorswashistoricallyhighin2023(when46percentoftheairlinesinoursamplecreatedpositivevalue)andin2024(when41percentcreatedpositivevalue).Thesearethetwobestyearsforthismetricsince1996,and

theyshownotableimprovementcomparedwith2019,thelastfullyearofprepandemicresults(whenonly23percentofairlineswerevaluecreators)(Exhibit2).

Manyairlinesdontearntheircostofcapital,andthesectoraverageispulleddownbysome

largerairlinesthatconsistentlydont.(Someoftheselaggingperformersarestateownedandperhapsvaluedmorefortherolesthattheyplayinservingbroadereconomicagendasthanfortheirfinancialperformance.)Still,therehavebeenseveralconsistentvaluecreatorsamongtheairlinesthatwetrack.1Omittingthepandemic-influencedresultsof2020–22,sevenairlinesinoursampleearnedtheircostofcapitaleveryyearduringthe2015–24period.Anothersixwere

1Ourtotalsampleincludesmorethan100airlines,representingroughly85percentofindustryrevenue.For2024,ourdataset(whichincludesonlythoseairlinesthathavealreadyreleaseddetailedfinancialresultsfortheyear)includesroughly

70airlines,accountingformorethan70percentofindustryrevenue.

6TheStateofAviation2025

Web<2025>

StieboiA2viation-climb>Exhibit<2>of<4>

TheStateofAviation20257

Arelativelyhighshareofglobalairlinescreatedvaluein2023and2024.

Shareofglobalcarrierscreatingvalue,1%

100

80

60

40

20

0

20002005201020152020

1CarrierswhoseROICwasgreaterthantheirweightedaveragecostofcapital.

Source:Air?nanceGlobal;S&PCapitalIQ;McKinseyanalysisofcompanyreports;McKinseyaviationvaluechainmodel

McKinsey&Company

valuecreatingforallbutoneoftheyearsinthatperiod.Twelveairlineswerevaluecreatingforallbuttwoofthoseyears.

Jetfuelisgenerallyairlines’largestoperatingcost,accountingforroughly20to40percentofanairline’scostbase,dependingonthebusinessmodel.Airlinesectorperformanceisoften

thoughttobelinkeddirectlytojet-fuel-pricedevelopments,whichlieoutsideairlines’control.

Thislink,however,isn’tasstrongassomemightimagine:Our

researchindicates

thatit’spossibleforthesectortodowellduringperiodsofbothhigherandlowerjetfuelprices.Both2023and,toalesserextent,2024wereyearswithhighernominaljetfuelprices,butthesectorstillperformedrelativelywellintermsofROIC.Jetfuelpricesin2025have,thusfar,beenlowerthantheywere

in2024,thoughgeopoliticaltensionscouldstillcausethemtofluctuateinthenearterm.

Howdoairlinescreatevalue?

Value-creatingairlinesoperateinamixofregionsandemployamixofbusinessmodels.Thereisnosinglepathtosuccess.Thatsaid,we’vewrittenbeforeabout

six“secrets”that,basedonour

research,canbekeycomponentsofsuperiorairlineROICperformance

:

—balancingcapacityanddemand

—generatingancillaryrevenue(forinstance,fromsellingpremiumseatsandextra-baggageallowances)

—earningagreatreputationthroughreliable,on-timeperformance

—providingoriginanddestination(O&D)routesthatotherairlinesdon’t

8TheStateofAviation2025

OEMandsupplychainchallengesresultedinfeweravailable

aircraftin2024,meaningthatairlineshadlesscapacitythantheyperhapswouldhaveliked.

—ensuringhighcapitalproductivity(forinstance,bymakingefficientuseofaircraft)

—buildingstrongorganizationalhealth,featuringaclearstrategicvision,well-communicatedvalues,andmotivatedemployees

Recentperformanceimprovementintheairlinesectorcanbetraced,inlargepart,tobetterexecutioninsomeofthesesixareas.Developmentsrelatingtothesedynamicscouldheavilyinfluencefutureresults.

Capacitymovinglargelyinlinewithdemand

In2023,therewere24percentfeweraircraftdeliveriesfrommanufacturersthanin2018(whichwasastrongyearforaircraftproduction).In2024,therewere30percentfewerdeliveriesthanin2018.OEMandsupplychainchallengesresultedinfeweravailableaircraft,andairlineshad

lesscapacity(meaningfeweravailableseatsonflights)thantheyperhapswouldhaveliked.

Thisundercapacitywasexacerbatedbyrampantengineproblemsthatrequiredadditionalmaintenancechecks,whichgroundedasubstantialnumberofaircraft.

Airlineshaverespondedto

supplyconstraints

byextendingaircraftleases(therewere11percentmoreleaseextensionsin2024thanin2018)andbykeepingolderaircraftinservicelonger

(theaverageageofthenarrow-andwide-bodypassengerfleetin2024was11.3years,versus

9.7yearsin2018).Still,supplylevelshavebeenlowerthanairlineswouldprefer.Thishasledtoachangeinthesupply–demandbalance,movingfromoversupplytoundersupply,andyieldshaveadjustedaccordingly.Fewerseatsavailabletopassengersmeanshigherticketprices.Theresult,inpureeconomicterms,isbetterfinancialperformance.

However,supplycouldsoonincrease.AsofMarch2025,airlinemanufacturers’orderbooks

arenearall-timehighs.Thisispartlyaresultofslowerdeliveries,butit’salsoanindicatorthataconsiderablenumberofaircraftaresettojoinairlinefleetsinthenextfewyears,creatingmoreavailableseats.

Meanwhile,afewfactorssuggestpotentialdecreasesindemand.Forsomematureaviation

markets,suchasEurope,real-GDPgrowthoverthenextfewyearsisexpectedtobelowerthanitwasfrom2000to2019.WhileairtraveltendstogrowfasterthanGDPdoes,growthinGDPisstillacoreunderlyingfactorfordemand.

Airlinesarealsoexpectedtoincreasetheiruseofsustainableaviationfuels,whichcanbetwotofourtimesmoreexpensivethanregularjetfuel.Thiscostcouldbepassedonthroughticketpricing,andpricierticketscoulddrivesomepassengersaway.

TheStateofAviation20259

Recent

economicuncertaintyposedbyglobaltradedevelopments

hascausedconsumerand

businessconfidencetotrenddownward,especiallyinNorthAmerica.Thiscouldleadtolower

demandforbothbusinessandleisuretravel.

Risinggeopoliticaltensions

couldalsoreducetravelflowsbetweencertaincountries.Notably,thesetensionscouldaltersupplychainsandimpede

deliveriestocertainpartsoftheworld,therebyreducingcapacityandcounteractingyielddrops.

Improvedreturnsfromancillaries

Airlinescontinuetogrowrevenuefromsourcesbeyondticketsales,suchasbaggagefees,in-flightpurchases,travelretailcommissions,andseatselectionandupgradefees.These

ancillariesaregenerallyassociatedwithhighermarginsandlowerpriceelasticitythanbaseticketsalesare.Bysomeestimates,ancillaryrevenuesharehasgrownfromapproximately5percentofsectorrevenuein2010toapproximately15percentin2024.

Airlineshavebeenexpandingthenumberofancillariesthattheyoffer.Butouranalysissuggeststhatratherthansimplyincreasingthebreadthofancillariesavailable,airlinescouldbenefit

morefromabetterretailingapproachfeaturinganintensifiedfocusonpersonalizingofferings,carefullypricingthem,andoptimizingwhenandhowancillariesareoffered.

Loyaltyprogramshavebecomeconsiderablesourcesofvalueformanyairlines.Someairlines,suchasthelargeUSnetworkcarriers,generatesizableamountsofrevenuefromcobranded

creditcards.ThisislikelylinkedinparttothehighcreditcardpenetrationandinterchangeratesintheUnitedStates.Toillustrate,interchangefeesintheUnitedStatesareapproximately1.7

percent,whereasinEuropethey’remostlycappedataround0.3percent.GreaterrevenuefromthesetransactionfeescanhelptofundUScreditcardrewardsandbenefits.

Inmarketswithlowercreditcardpenetrationandinterchangerates,loyaltyprogramscanstillbeaneffectivedeviceforswingingcustomerdemand.Customersmightchooseanairlinebecauseof

astrongpreferenceforitsloyaltyprogram

,evenwhentheairlinedoesn’tofferthelowestpriceorthebestscheduleoption.

Reliability’srelationshiptoperformance

Wefindevidencethatbetteron-timeperformancecorrelateswithbetterairlinefinancial

performance(Exhibit3).Inoursurveyonairlinecustomerpreferences,34percentofpassengersindicatethatreliable,on-timeoperationmakesthemmoreloyaltoanairline,makingthisfactor

thethird-mostimportantaftercompetitivepricing(48percent)andflightcomfort(36percent).Today’spassengersaremuchmoreawareofanairline’son-timeperformancerating,giveneasypublicaccesstostatisticsthroughmetasearchenginesandtrackingwebsites.

On-timeperformanceintheindustry,however,hasn’tbeenonanupwardtrend.Inthe

UnitedStatesin2024,forexample,78percentofflightswereontime.Thisfigureisupfrom

73percentin2000butdownfrom81percentin2016.Staffingshortagesacrossthevalue

chainmayhavecontributedtothisresult.Somefactorscausingdelayslieoutsideanairline’s

sphereofcontrol,butdata-drivenoperationaldecision-making,poweredbybetteranalytics,canhelpairlinestakeproactivestepsbothtomitigatedelaysandtokeeppassengersinformedaboutimpendingdisruptions.

Thepowerofprivilege

AnairlineenjoysnetworkprivilegeifitcanofferO&Djourneysforwhichitistheclearbestchoiceforpassengers.Anairlinethathasalargershareofitspassengersflyingontripsforwhichit’s

privilegedwilltendtogeneratebetterROIC.PassengersflyingonprivilegedO&Droutestendtoprovidehigheryields,sincethey’rewillingtopayfortheairline’sdistinctiveoffering.

PrivilegedO&Dsoftenoccurinsecondarymarketsinwhichfewerpassengerstraveltheroute.Foronelargenetworkcarrier,theaveragemarketsizeforprivilegedO&Drouteswas24timessmallerthanthatofthemostcompetitivelyexposedmarkets(meaningthoseinwhichtheairlinehaslessthan20percentexpectedmarketshare).

10TheStateofAviation2025

Exhibit3

Airlines’on-timeperformancecorrelateswiththeir?nancialperformance.

AverageROIC,byon-timeperformance,%

12

11

10

6

<70%71–80%81–90%>90%

Shareoflightsarrivingontime

Source:Air?nanceGlobal;Flightradar24;S&PCapitalIQ;McKinseyanalysisofcompanyreports;McKinseyaviationvaluechainmodel

McKinsey&Company

Hubs—whenanairlinehasaconcentratedpresenceatanairportwithmanyroutesandahighshareofconnectingpassengers—areonewaytocreateprivilegedO&Dofferingsand,inparticular,to

tapintothinnersecondarymarkets.Hubsallowanairlinetogrouptogethermultiplepassengerflowsgoingtoacertainsecondarycity,makingservicetothatsmallercitymoreviable.Some

industryobservershavesuggestedthattheriseoflonger-rangeaircraftwithsmallercabinsizescouldleadtothedemiseofhubs.Althoughhubmarketsharehasslightlydecreased,wefindthatconnectingtrafficremainsasizableportionofmultipleend-to-endpassengerflows.

Airlinescanfurtherbuildoutnetworkprivilegebyservingsecondarymarketsinacost-effectivemannerandconnectingthemtoat-scalehubs.Newaircrafttechnologyintheformofeithercost-efficientregionalaircraftorlonger-range,smaller-gaugeaircraft(whichcanflylongdistances

butholdfewerpassengers)canhelpstrengthenhuboperations.

Ariseincapitalproductivity

Capitalproductivity,orhowmuchrevenueisgeneratedperdollarofinvestedcapital,isofvitalimportancetoairlineperformance.Airlinescanmaximizecapitalproductivityinanumberof

ways,suchasthefollowing:

—ensuringthatnewaircraftflyasmanyhoursperdayastheycan(tento12hoursperdayfornarrow-bodyaircraftand15to16hoursperdayforwide-bodies)

—orderingaircraftattherightmoment—whenaircraftpricesaredownorwhenaircraft

deliverieswillbetimedtoarriveamidhighpassengerdemand—whichcanlockinsavingsacrosstheaircraft’slifespan

TheStateofAviation202511

—effectivelydealingwith

demandseasonality

byplayingwithanaircraftfleetsageprofile(forinstance,bykeepingamixofnewerandolderaircraftinthefleetandputtingolderaircraftintoserviceonlywhendemandishigh)

Capitalproductivityhasincreasedovertime,innominalterms.In2000,airlinesatasectorlevelgenerated$0.90forevery$1.00invested.Thatincreasedto$1.20per$1.00investedby2023andto$1.23by2024.Thisincreaseisinpartcausedbyinflationstemmingfromsupplydemandimbalance,butairlineshavealsobecomemorecapitalproductiveovertime.

Thevalueofhealthyorganizations

Healthyairlineorganizationsarebetterablethanotherstobringdisparatefunctionstogethertomakecross-functionaltrade-offs,quicklycomingtodecisionsthatarebestfortheairlineasa

whole(forinstance,throughintegratedplanning).Theyemploymotivatedworkforcesthatknowwhatsexpectedandfeeltrustedtodeliverontheirobjectives.Theyretypicallyquitelean.

Wemeasureorganizationalhealthusing

McKinseysOrganizationalHealthIndex

,adiagnostictoolthatmeasuresthecriticalelementsofahigh-performingculturewithinanorganization.

Organizationalhealthcontinuestocorrelatewithbetterairlineperformance(Exhibit4).Butmanyairlinescouldbehealthier.Inoursample,67percentofairlinesexhibithealthlevelsthatareinthebottomquartileacrosssectors.

Exhibit4

AirlineswithbetterorganizationalhealthtendtoachievebetterROIC.

ROICvsMcKinseyOrganizationalHealthIndex(OHI)score1

20

15

10

ROIC,2aftertaxes,inyearofOHI

assessment,%

5

0

–5

–10

020406080100

OHIscore

1Averageacross9dimensionsofhealth;yearsvary.Basedonresultsof10individualairlineswith~60,000respondents.

2Includinggoodwill.

McKinsey&Company

12TheStateofAviation2025

Healthyairline

organizationsarebetterablethanotherstobringdisparatefunctions

togethertomakecross-functionaltrade-offs.

TheStateofAviation202513

Airlinescouldimprovetheirhealthlevelsbyfocusingonareassuchasdirection(communicatingaclearandcompellingvisionofwheretheairlineisheaded,howitwillgetthere,andwhatthis

meansforeveryone),motivation(nurturingemployeeloyaltyandenthusiasm),andexternal

orientation(engagingwithcustomers,suppliers,partners,andotherexternalstakeholderstocreateanddelivervalue).

Whatcouldhaltairlines’progressin2025?

Despitepositivetrendsin2023and2024,severaldevelopmentscouldstoptheairlinesectorfrommaintainingorimprovingitsresultsin2025.Demanduncertaintylinkedtochangesin

businessandconsumersentimentcouldleadtolowerdemandforcertaintravellanes,therebyaffectingairlines’financials.Shouldarecessionhit,demandcouldbefurtherdampenedduetothelinkbetweenGDPgrowthandairtravelgrowth.Tariffsmayputupwardpressureonairlineinputcosts.

Knock-oneffectsareoftenunpredictable.LowerdemandgrowthmightbeoffsetbydecreasedOEMsupplyresultingfromtradeflowtensions.Shiftingpassengerdemandcouldopenupnewopportunitiesfornetworkprivilege.Healthierorganizationswillmeetchallengeswiththecross-functionalnimblenessthat’srequiredtorapidlyrespondtochangingexternalconditions.

Airlineperformancehasbeenclimbing,buttherearepotentialstormcloudsinthedistance.Airlinesthatcannavigatethisturbulencecouldseetheirfinancialperformancetakeflight.

SteveSaxon

isapartnerinMcKinsey’sLondonoffice,and

JaapBouwer

isaseniorknowledgeexpertintheAmsterdamoffice.

TheauthorswishtothankRegisHucforhiscontributionstothisarticle.

ThisarticlewaseditedbySethStevenson,asenioreditorintheNewYorkoffice.

Chapter2

Arelow-costairlineslosingaltitude?

TheStateofAviation202515

Low-andultra-low-costairlines

havetendedtoearnbetterreturnsthanfull-servicecarriers,buttheirperformancehasslowedinthe

UnitedStates.Aretherelessonshereforglobalairlineleaders?

Airlinesareoftencategorizedintogroupsdifferentiatedbytheirbusinessmodels—inparticular,theircoststructuresandrevenueapproaches:

—Legacycarriers(alsoknownasfull-serviceairlines)tendtooffermulticlasscabinsandawiderangeofamenities,withmanyservicefeaturesincludedintheticketprice.ExamplesincludeAmericanAirlines,BritishAirways,andCathayPacific.

—Low-costcarriersandultra-low-costcarriers—acombinedgroupknownas(U)LCCs—tend

toselldiscountedbase-fareticketsandthenchargeextraforarangeofamenities.ExamplesincludeSouthwestAirlines,SpiritAirlines,Ryanair,andAirAsia.

Inthecourseofourresearchonairlineprofitability,we’vefoundthat(U)LCCshavetypicallydeliveredbetterfinancialreturnsthanlegacycarriers.Thisoutcomehasbeentrueacrossgeographiesandovermultipledecades.

But(U)LCCsinNorthAmerica,oneoftheworld’slargestairlinemarkets,haverecentlybeen

underperformingtheirlegacycounterparts—fallingbehind,bysomemeasures,onbothgrowthandprofitability.Changingeconomicconditionsthatinfluencepassengerdemandcould,of

course,pushthistrendinunexpecteddirections,butit’sworthinvestigatinghowsuchamajorreversaloccurred.

WhichactionsorcircumstancescloudedthepictureforNorthAmerica’s(U)LCCs?Andwhat

importantbusinessmodelimplicationsshouldbeconsideredbyairlinesofalltypes,inallregions?

Budgetairlineshavepropelledindustrygrowthandprofitability

From2012through2019,(U)LCCsgenerallyoutperformedlegacyairlinesacrosstheglobewithrespecttoROIC(Exhibit1).Thistrendwasespeciallypronouncedintheyearsleadinguptothe

Exhibit1

Low-costairlinesgenerallyoutperformedfull-servicecarrierspriortothepandemic.

GlobalairlineROIC,includinggoodwill,

bycarriertype,

weightedaverage,%

12

10

8

6

4

2

(U)LCCs1

Legacycarriers

0

20122013201420152016201720182019

1Low-costcarriersandultra-low-costcarriers.

Source:Air?nanceGlobal;aviationvaluechainmodel;companyreports;S&PCapitalIQ

McKinsey&Company

pandemic,when(U)LCCsbenefitedfromstructurallyleanercostbasesthanlegacycarriers—thankstosimplifiedoperationsandloweroverheadandlaborcosts.

Akeyfactorin(U)LCCs’successhasbeentheiroverallcoststructures.Theyoftenuse

streamlinedroutenetworkdesigns,optingforpoint-to-pointserviceoverhub-and-spoke

models,therebyenablingmoreefficientaircraftutilizationandlimitingtheoperationalcomplexityofconnectingpassengers.Additionally,theytendtoflytosecondaryairports(whichgenerally

involveslowercosts)andoperatedenseraircraftwithasingle-cabinlayout(fittingmore

passengersonthesameplanebynarrowingtheseatsanddecreasinglegroom).

(U)LCCshavealsoexcelledatgeneratingincrementalrevenueatrelativelyhighmarginsfrom

optionalservicessuchasbaggagefees,seatselection,andonboardrefreshments.These

servicesareunbundledfrombasefares,priceddynamically,andoftenpurchasedatthepointofneed.Whilelegacycarriershaveadoptedsimilarunbundlingstrategies,(U)LCCshavebuiltan

entirebusinessmodelaroundthisapproach,whichreinforcestheirvalue-orientedpositioning(thankstolowbasefares)whilebolsteringfinancialperformance.

Overthepastdecadeandahalf,(U)LCCshavegrownatafasterratethanlegacycarriers.Acrossmostregionsoftheworld,(U)LCCs’shareoftotalavailableseatkilometers(ASKs)—ameasureofairlines’carryingcapacity—hassignificantlyincreased(Exhibit2).

DiscountcarriershavestalledoutinNorthAmerica

While(U)LCCsoutperformedlegacyairlinesintheperiodpreceding2020,morerecentdatashowlegacycarriersbeginningtoleadinROICinNorthAmerica(Exhibit3).Although(U)LCCscontinuetogrowmodestlyintermsofscheduledcapacity,theirgrowthratenowtrailsthatoflegacycarriersforthefirsttimeinmanyyears.

16TheStateofAviation2025

Web<2025>

StieboiA2viation