CAPA State of the Industry | May 2026

Transcript

Lori Ranson:Good morning, everyone. So if you think about the state of the industry, the story really is the second half of the year, right? Particularly in North America, as carriers are gearing up for a record travel season. But the big question is, what happens to demand and fare attraction in September? Right now, it's a waiting game, and carriers are taking relatively measured actions to combat high fuel costs. You can see here there hasn't been a wave in aircraft retirements yet as carriers wait to see what happens with fuel curves. There's a possibility you could see an uptick in stored aircraft, but again, formal retirements are likely to hold off until clear demand patterns emerge. It just shows no one wants to make sweeping changes until there's some sense of a definitive timeline to the war's end. There's also been a healthy pipeline of orders this year, and you'll see a noticeable jump in wide-body orders as the need to replace older and less fuel-efficient aircraft becomes more urgent. Both Airbus and Boeing have gotten notable wins from Delta and Lufthansa, Which shows airlines have to think beyond immediate geopolitical shocks. Obviously, there's a lot of discussion about where capacity is headed, and this data set is planned schedules. I think we can agree this is going to change if the war drags on and the Strait of Hormuz remains closed. And even if it opens, it's not like things return to normal overnight. We all know that. A return to normal is a 2027 story. I think this slide really shows carriers are working to balance supply and demand in the back half of the year. You can see projected capacity for Asia-Pacific takes a dip starting in October, and effects of the fuel cost crisis have varied among airlines in that region, and capacity is being cut 5 to 10%. LCCs are more affected, So they are instituting larger cuts. Just a note, AAPA is warning high fuel costs will cause more serious problems if they persist after the summer. So again, it just shows you this is a second half of the year story. This is a snapshot of European capacity, and you see the dip at the end of this year isn't quite as pronounced as in Asia. And I'd also note that concerns for fuel shortages in the region have died down. A4E recently said there's enough fuel for the summer period, but there's little discussion about what's going to happen in the winter. But carriers remain upbeat. Calling himself one of life's optimists, Ryanair's Michael O'Leary recently said he expects a short-term resolution to the conflict, a gradual calming of the fuel prices and a surge in bookings. We'll see if he's right. Here you can see North American projected ASMs up slightly at year-end. Carriers here are facing the same fuel cost challenges, but demand is holding up, and for now, numerous fare increases have happened, and we know one of the reasons that they're largely sticking is no U.S. carriers hedge. And while carriers in other regions tout the advantages of fuel hedging, there is no indication U.S. carriers are going to return to hedging. Just an example, Southwest was the last holdout and says it has no plans to hedge in the future. It spent about $150 million on hedges in 2024 and said with the exception of a couple of positive years, its hedging strategy wasn't beneficial for over a decade. I do think once the summer's over, capacity's gonna fall because inevitably pricing traction's gonna weaken. It's been nearly a month since Spirit went out of business, and there were a lot of discussions immediately afterwards dissecting Spirit's demise. That's died down some. Look, the reality has always been in times of crisis, carriers with stronger balance sheets survive. No one that follows this industry was surprised about what happened to Spirit. Conversations about liquidation and Spirit's viability were happening even before the war started. And while Spirit is the biggest casualty, you can see other airlines have also ceased operations. Some carriers are working to take advantage of Spirit's exit, but the reality is not all those routes need to be backfilled in this current fuel environment. Do you remember these headlines from a few weeks ago? I'd just like to do an informal poll. Raise your hand if you think more consolidation is in store in the U.S. during the next 24 months. Interesting. After Spirit shut down, consolidation chatter died out a bit. And while the current administration may look favorably on potential deals, the reality is there should not be a rush to push M&A through. These deals have to fundamentally make sense for all parties involved over the long term. Despite the current operating environment, the industry marches on in investing in and developing new technology. I ask AI. to create a graphic of how artificial intelligence is used in the industry, and this is what it came up with. I'm not sure we're going to get to a point where AI is going to power every part of aviation, but the industry continues to experiment with how and where AI can work. I think this is a really interesting assessment of how airBaltic is using AI to help with route planning, but you can see people ultimately still make the decision of where to launch service. Just to close, this is an industry that's used to dealing with unexpected shocks. At the start of the year, no airline expected its fuel bill to double, but here we are. Some airlines are better equipped to deal with what's happening than others, and I'll just end where I started. The second half of the year is when airlines may have to make more drastic decisions to combat higher fuel costs, unless of course Mr. O'Leary is right. Thank you, Lori. Thank you. Enjoy the conference. I'd like to invite Ken Quinn up to the stage to introduce the next panel. Thank you, Lori.

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