In a market where for many airlines margins are wafer thin, it takes very little for those margins to come under severe pressure. No market is being tested as much as that of the United States right now. Facing several external forces, airlines are reviewing their strategic options - and there are significant implications for the market, airports and travelling public.
We’ve explored some of the key factors behind the current situation, and something is going to have to give - and soon.
It all begins with supply
Simple economics will tell you that many of the biggest problems faced are around supply and, in this case, capacity - and most importantly, the types of capacity being supplied.
International airline capacity is important, accounting for ~99.1 million seats this summer season – around 13% of total US capacity, of which US-based carriers hold a 51% share - but the current supply focus is on the domestic market. Widely recognised as one of the most mature markets in the world and where through several rounds of consolidation airline profitability has been higher than industry averages, the US domestic market is now facing its latest strategic crisis.
Capacity market share over the last decade
In the last ten years, domestic capacity has increased by 19% across both legacy and low-cost segments, the low-cost share has remained at just below one-third for the last decade. Such balance and consistency reflects a mature, well-ordered market where every airline knew its place in the market and benefited from it.
In the legacy carrier segment balance has also largely remained in place with little change in capacity share across the major legacy airlines in ten years. Much of the competition between the carriers is based around product offering, the network offered, and various creative pricing strategies.
From a results perspective, United and Delta Air Lines have outperformed American Airlines in recent years, leading in terms of product development and service offering (although American claim to be catching up with their competitors). Ultimately, a stabilised supply of capacity and no significant changes in respective capacity shares have served both the airlines and the consumer well. The disruption that we are now seeing in the wider US market is not a result of any significant changes in the networks, capacity or the legacy airlines’ strategies.
In the low-cost carrier (LCC) segment, Southwest Airlines remain the true definition of a market leader with nearly seven times morecapacity than second placed JetBlue; indeed, Southwest capacity production places them as the second largest carrier in the US domestic market, slightly ahead of Delta Air Lines. Collectively the tier two low-cost airlines - comprising of JetBlue, Frontier, Spirit and Allegiant - provide 7.8% of all US domestic capacity and would normally be considered as part players in the market, but at the moment how these carriers are changing and performing is where the focus is really taking place.
Post-pandemic, Spirit grew rapidly – expanding its fleet from 147 to 232 aircraft by 2024 to capture surging 'revenge travel' demand. That growth came at a cost. Maintenance issues left aircraft grounded waiting for parts, driving up costs without generating revenue. Spirit has since been through two Chapter 11 processes, now operating 160 aircraft with further fleet reductions possible. Unexpectedly increased fuel costs and draining consumer confidence have analysts suggesting that Spirit may not survive the summer season and certainly a slowdown in bookings, weakening general market demand and less disposable income are all factors that are working against the airline and with their current on-time performance around 63%, operational integrity needs to be addressed as well.
Spirit's demise is to Frontier's advantage; the latter has doubled capacity since 2016 and now offers more seats in the market than JetBlue. Frontier have 21 million seats on sale this summer season, slightly down on summer 2025’s 22 million. Operating 183 aircraft this year the airline has expanded its fleet from 134 in 2022, which has allowed the carrier to both keep its unit costs under control and thereby compete head-to-head with the other established low-cost carriers.
It’s all about the cost
Successful airlines are obsessed with cost control and are ruthless in every aspect of their processes. For every low-cost airline keeping unit costs under control is one of the most important parts of the business and once they start to creep up, getting them back under control becomes almost impossible. As Spirit and JetBlue have found out in recent times once the organisation's cost start to increase, they climb and climb, especially when those costs must be allocated to aircraft fleets that are not growing or shrinking.
Overlay increasing operating costs with a currently higher fuel price and suddenly survival can become very hard. US airlines typically do not hedge fuel price, buying at market rates. Spirit is currently paying over US$4 per gallon against a budgeted assumption of US$2.67 – and their 2027 fuel budget is set at US$2.14. That gap is not something fare increases can reliably close, particularly in a market where consumer confidence is softening and discretionary travel spend is under pressure. All of which may explain why Spirit are exploring the potential for government support for the increased costs of their current operation and why JetBlue have just secured US$500 million against 22 aircraft; a move that will buy time but not a long-term solution to the market’s forces. All of which begs one question, what happens next?
Is there a way forward?
The answer may be consolidation. Capacity growth has been steady over the last decade, but the intensity of competition has reached a point where survival for all players looks increasingly difficult. Various attempts, discussions and speculation have yet to result in any concrete developments. It could be argued that some of the airlines operating have little value to bring to a new partnership.
But in times of desperation, consolidation can become the least unpalatable option. There is clearly pressure for something to give in the US market over the next few months, be that the collapse of one or two carriers, a meeting of minds with a merger, or an acquisition led by one of the more financially stable low-cost operators.
While it is unusual for such speculation in the peak demand summer season it’s clear that some airlines are under increasing pressure and that waiting until the traditional autumn period for such events is not possible. Quite who the winners will be is yet to be determined; sadly the losers are already in place.
