Quick Read
- Domestic airfare in the U.S. dropped 5.3% in March compared to last year.
- Airlines are cutting capacity and adjusting forecasts amid weaker demand.
- Economic uncertainty and reduced corporate travel are key factors.
- Premium and international ticket sales remain strong despite challenges.
- Major carriers like Delta and Southwest have revised their 2025 outlooks.
Weaker Travel Demand Pushes Domestic Airfare Down
Domestic airfare in the United States has seen a significant decline, with prices dropping 5.3% in March compared to the same period last year, according to the Bureau of Labor Statistics. This marks a notable shift in the airline industry, which had been riding a wave of strong demand post-pandemic. The drop in prices is largely attributed to weakening domestic travel demand, economic uncertainty, and a slowdown in corporate travel.
Economic Uncertainty and Consumer Behavior
Airline executives have pointed to economic uncertainty as a major factor influencing consumer behavior. American Airlines CEO Robert Isom noted that uncertainty makes consumers hesitant to spend on discretionary items like vacations. “Nobody really relishes uncertainty when they’re talking about what they could do on a vacation and spend hard-earned dollars,” Isom said during a recent earnings call.
Other factors, such as President Donald Trump’s tariff policies and volatile markets, have also contributed to the slowdown in domestic travel. With inflationary pressures and fears of a potential recession, many consumers are prioritizing essential expenditures over travel.
Corporate and Government Travel Declines
Corporate travel, a critical revenue stream for airlines, has also slowed. Delta CEO Ed Bastian reported that corporate travel growth, which was up 10% year-on-year at the start of 2025, has since flattened. Business travelers, who are typically less price-sensitive and book last-minute tickets, are cutting back due to the same economic concerns affecting households.
Government travel has also taken a hit, with reduced spending and layoffs under the Trump administration. United Airlines noted a 50% decline in government-related travel bookings, which has further impacted the domestic travel market.
Airlines Adjust Capacity and Forecasts
In response to the weakening demand, major airlines are adjusting their capacity growth plans. Delta Air Lines, Southwest Airlines, and United Airlines have announced plans to scale back capacity after the summer travel season. Southwest, which relies heavily on domestic travel, has pulled its annual targets for 2025 and 2026, citing economic uncertainty.
Alaska Airlines has also lowered some fares to fill seats, with Chief Financial Officer Shane Tackett stating that while demand remains high, it is not at the peak levels anticipated earlier this year. “The fares aren’t as strong as they were in the fourth quarter of last year and coming into January and February,” Tackett said in an interview with CNBC.
Premium and International Travel Hold Steady
Despite challenges in the domestic market, premium and international ticket sales remain strong. Delta, United, and other carriers have reported steady demand for long-haul and premium cabin travel, often purchased by more affluent customers. United Airlines even reported an 8% year-on-year increase in spring international bookings.
This bifurcation in demand highlights the resilience of certain segments of the travel market, even as economic pressures weigh on the broader industry.
Outlook for the Airline Industry
The airline industry faces a challenging road ahead, with the potential for further declines in domestic travel demand. Airlines are bracing for a possible recession, with United Airlines providing two financial outlooks: one assuming a recession and another assuming continued economic stability. The company expects to remain profitable in either scenario.
Airline executives have expressed hope that economic certainty will return, restoring consumer confidence and boosting travel demand. “Certainty will restore the economy, and I think it will restore it pretty quickly,” said American Airlines CEO Robert Isom.
For now, airlines are focusing on managing capacity and maintaining profitability in a volatile economic environment. The summer travel season, typically the industry’s most profitable period, will be a critical test for the resilience of the domestic travel market.