Record airline profits mask fragile dynamics for carriers and suppliers

Following a blistering post-pandemic recovery, the demand growth outlook has moderated. The International Air Transport Association (IATA) forecasts annual net profits of $36bn on $979bn in revenue for 2025, driven by a 13% reduction in jet fuel prices, which translates into an industry-wide saving of $25bn and improved margins. Airlines are forecast to transport a record 4.99 billion passengers in 2025 and 69 million tonnes of air cargo, despite trade tensions and delivery and persistent maintenance delays denting demand forecasts.

The current favourable demand and declining jet fuel prices have created a fragile sector resilience, not a signal of durable economic strength. Beneath the aggregate industry-wide gains are intertwined external risks (e.g., renewed inflation, weakening consumer spending, tariff policy uncertainty, macroeconomic and geopolitical tensions) and internal risks (e.g., potential new aviation taxes, airport charges, demand shocks, or costly regulations). This fragility has already been felt in the UK. In early September, Leeds-based Jet2, the UK airline and package holidays provider, warned that profits would be at the low end of analysts’ forecasts, citing a “less certain consumer environment”. The firm said it was cutting back capacity for the upcoming winter season, prompting its shares to plunge 24% on the market open, before recovering to end the day down 15%. The demand warning rippled through the share price of several major airlines, underlining the aviation industry’s sensitivity to a weakening backdrop.

Global GDP growth is expected to slow over the next two years, traditionally a headwind for aviation. US trade policies will dampen domestic activity and global trade. While tariffs have so far had limited inflationary impact in the US, a delayed rise in price pressures could limit the pace and scope of Federal Reserve rate cuts. Outside the US, tariffs may prove mildly disinflationary, as exporters face excess capacity and redirect shipments to other markets, intensifying competition and lowering prices.

In the UK and Europe, these global forces are filtering through into specific risks and opportunities across the supply chain, fleet strategies, and environmental policy. Globally, aircraft backlogs have surged to more than 17,000 planes, up sharply from around 10,000-11,000 pre-pandemic, with an implied wait time of 14 years, according to IATA. This profound shortage is reshaping fleet dynamics, forcing airlines to retain older, less-efficient jets longer and creating a surge in demand for the maintenance, repair, and overhaul (MRO) sector, at a time when passenger traffic is surpassing record annual highs. It has led to a “super cycle” in the MRO market, projected to reach a record $119bn in 2025, 12% higher than the previous 2019 peak. Operating older aircrafts for longer directly translates into higher fuel and maintenance costs while stalling sustainability commitments to meet rising fuel efficiency requirements. For UK SMEs in the MRO sector, intensified demand represents both a significant growth opportunity and a strain. The latter affects smaller firms where capacity bottlenecks and supply chain constraints obstruct successful new business capture.

But it is not just older aircrafts that are clogging MRO pipelines. Engine maintenance bottlenecks have become a particularly pressing challenge due to manufacturing defects in Pratt & Whitney’s geared turbofan engines that power many Airbus A320neo-family jets. These issues have led to prolonged inspection and repair cycles, grounding hundreds of flights worldwide, including from carriers Wizz Air and airBaltic, which are both seeking accelerated repair agreements. Airlines have been compelled to redeploy aircraft, revise flight schedules, and even seek alternative engines, adding further operational complexity and costs. Disruptions are expected to persist into 2026 and beyond, pressuring both airlines and their supply chain partners.

As maintenance activity expands, labour unrest threatens to disrupt the production lines that underpin the UK’s aerospace sector. Airbus UK workers voted for a 10-day strike in September over pay disputes. This threatens delays on key A320 and A350 programmes, with knock-on effects for UK suppliers such as Rolls-Royce and GKN Aerospace that are embedded in these production lines, alongside dozens of smaller subcontractors in the Midlands and North Wales that depend on steady Airbus workflows. Delivery delays are also impacting air cargo operators, where limited new aircraft coincide with an upcoming wave of retirements. Air cargo transports more than $8 trillion worth of goods, accounting for approximately 33% of world trade by value, according to IATA.

UK aerospace suppliers also remain squeezed by tariffs. US duties of 10-25% on aircraft parts weigh on competitiveness for those tied into Boeing’s programmes, while exemptions on Airbus components have provided some relief. Airlines’ evolving fleet strategies add further complexity. Qatar Airways’ cancellation of 25 Boeing 737 MAX orders in favour of Airbus highlights shifting demand patterns, while the CMA’s approval of Boeing’s $4.7bn takeover of Spirit AeroSystems offers some manufacturing stability, with the prospect of more reliable orders and improved supply chain discipline. Elsewhere, Boeing is reportedly finalising a deal with China to sell as many as 500 aircraft, a transaction that would end a sales drought stretching back to 2017. Such deals underscore how aircraft orders continue to be deployed as diplomatic levers to narrow trade imbalances with the US.

Meanwhile, stronger-than-expected international travel demand is benefiting European and UK carriers, particularly in premium cabins. Premium travel demand is supported by resilient consumer spending, post-pandemic shifts that prioritise comfort on long-haul flights, and the continued blend of business and leisure travel. At the same time, delays and engine bottlenecks have unintentionally helped sustain pricing power by limiting capacity growth, leaving European carriers in a relatively stronger position than US rivals. European short-haul capacity is set to remain tight well into the next decade.

The policy environment also remains challenged. The UK’s Climate Change Committee has warned that aviation’s rising share of national emissions is now greater than the entire electricity sector, raising the prospect of tighter regulation and higher decarbonisation costs ahead. Despite these risks, Heathrow airport has published plans for a £49bn expansion that includes a third runway and rerouting London’s M25 motorway after chancellor Rachel Reeves encouraged fast-track proposals back in January.