Financial Summary: First Quarter and Summer Outlook

Season 1, Episode 1 | May 22nd, 2025

Executive Summary:

In this second episode of ALtitude, hosts Fabricio Cojuc, Nicolás Rhoads, and Arturo Duhart dig into the state of commercial aviation in Latin America, with a special focus on Mexico. The discussion highlights both the global and regional dynamics shaping the industry in early 2025.

Key Points:

• Global Trends: A post-COVID soft landing is underway. While some regions like Europe and Latin America show resilience, U.S. domestic airlines face headwinds due to reduced demand, economic uncertainty, and operational challenges.

• Latin America: Domestic growth is solid — especially in Brazil and Argentina — with LATAM Airlines showing strong profitability. Copa and Avianca are expanding cautiously amid politically-motivated uncertainty in Panama.

• Mexico: After a record-breaking 2023, growth stagnated in 2024 due to aircraft groundings (e.g., Volaris A320 GTF issues), reduced AICM slots, and conservative U.S. carrier capacity deployment. Q1 2025 shows early signs of recovery but load factors are falling, raising concerns. •

• U.S. Market: Airlines are cautious, with major carriers such as United and Delta cutting domestic capacity. Consolidation is a recurring theme. •

• Europe: Carriers like Lufthansa and Air France-KLM are optimistic, buoyed by fuel cost relief and stable demand on non-U.S. routes. •

• Outlook: Summer 2025 will be mixed. Growth is expected in select transpacific and intra-regional markets. However, ongoing challenges caused by supply chain disruptions and sustainability constraints will test airline strategies.

The episode presents a nuanced view: while parts of the industry are stabilizing, volatility remains — especially in the North American Market. The team emphasizes the need for agility and strategic planning amid a complex recovery.

Translated Transcript:

Entrance tag: Welcome to Altitude. Buckle up—we’re about to take off. Let’s talk about aviation, seriously.

Arturo: Hello and welcome to the second episode of Altitude. I’m Arturo Duhart, joined by Nicolás Rhoads and Fabricio Cojuc. Together, we launched this initiative with the goal of creating a serious, well-informed, and useful space for analyzing the world of aviation in Latin America.

In our previous episode, we introduced ourselves and explained why we believe there is a need for a voice like ours. Today, we dive into our first in-depth topic: The current state of aviation in Mexico and the wider region. We’ll examine how the industry is behaving, the emerging opportunities, the risks that are on the table, and how the economic and political environments may be — or already are — influencing the aviation sector.

As many of you know, my background is in operations, both above and below the wing, with many years dedicated to safety and security issues. In this episode, I will be more of a moderator, asking questions and letting the real experts — Fabricio and Nicolás — take the lead in the analysis.

Thanks again for joining us for this thematic takeoff here on Altitude. Let’s begin.

The first question that comes to mind is for you, Nico. Since you closely follow global reports and trends, how is commercial aviation doing — globally and in Latin America? Is the momentum still strong? Is it cooling down? Or are we in survival mode? What is your take?

Nicolás: Hi everyone, thanks Arturo. From what I see in daily reports from IATA, ALTA, business sources, and thought leaders like Airline Observer, the outlook shows a kind of soft landing after some intense post-COVID recovery years.

Let me set the context. Airlines are still growing in Latin America, but not at the pace of 2022 or 2023. For instance, in January, traffic in Latin America grew by only 2.4% according to ALTA. In February, IATA reported a 6.7% increase in passengers for Latin America, but with so much added capacity, load factors dropped. March followed a similar pattern.

The reasons are clear: Global economic uncertainty, declining demand from Asia and North America, and ongoing trade tensions. But in Latin America’s domestic markets, the news is better — Brazil saw a 44% increase in domestic flights, and Argentina grew 12% in internal passengers. LATAM Airlines posted a $355 million profit in Q1 2025, up 38% from last year, largely due to favorable exchange rates in Brazil and growth in both cargo and passengers.

Copa and Avianca have not reported yet (by the time the podcast was recorded), but expectations are lower due to revenue impacts from the Panama Canal crisis.

In Europe, Lufthansa cut its operating losses by 15% thanks to more capacity and fuller flights. Air France-KLM halved its operating loss compared to Q1 2024. IAG hasn’t reported yet, but it’s expected to show similar resilience due to strong cost control and its position in the Latin America-Europe market.

But not everything is rosy. Turkish Airlines, despite being a global powerhouse, posted its first net loss since 2021 due to inflation, currency devaluation, and even poor weather, especially impacting operations in Asia. Chinese carriers reported losses up to 30% higher than Q1 2024, partly because high-speed rail is taking market share, on top of supply chain and economic issues.

In the U.S., the picture is even bleaker. American Airlines’ losses grew by over 50% compared to Q1 2024, due to weak demand and a highly uncertain political and economic environment — plus incidents like the Washington accident that hurt public perception.

Domestically focused airlines like Alaska lost 23% more than the previous year due to capacity-demand mismatches. But United had its best Q1 in five years, with $387 million in profit, and Southwest also significantly reduced its losses. Delta posted a $240 million profit versus $37 million in Q1 2024.

So, what is the global picture? Airlines heavily dependent on U.S. domestic and outbound markets have struggled the most. Latin America and Europe have shown more strength, especially those not reliant on U.S. traffic. As the saying goes: when the U.S. sneezes, Latin America catches a cold — and we are seeing that again.

Arturo: Nico, let me ask a follow-up: how is the drop in jet fuel prices playing into all this? It is a crucial part of airline costs, and prices are falling sharply. Would the results have been worse without this?

Nicolás: Exactly. Jet fuel prices are helping mitigate some of the damage. European carriers have specifically mentioned this as a key factor. If the trend continues, it could be beneficial — but it is unlikely to offset declining demand and U.S. domestic uncertainty.

Arturo: Thanks, Nico. Now, Fabricio, let us bring this home. How does Mexico fit into this picture? Are we on the same track, or are there unique factors?

Fabricio: Mexico is lagging slightly compared to the rest of the region. To understand our context, we need to go back a couple of years. In 2023, passenger demand — domestic and international — grew by 11%, a record, hitting 118 million passengers. We even overtook Brazil as Latin America’s largest air market.

Also, in September 2023, Mexico regained FAA Category 1 status after nearly 30 months of downgrade — a boost to post-pandemic recovery.

But in 2024, the picture changed sharply. Growth slowed to just 1%, and capacity was flat, ending the year at 120 million passengers. The slowdown started in late 2023, with U.S.-Mexico routes, which were growing in double digits, falling to less than half that rate a year later.

There are three key reasons for this slowdown:

1. Grounding of Volaris’ A320s with Pratt & Whitney GTF engines. Viva Aerobus mitigated this situation by leasing more than 20 aircraft from Avion Express.

2. Reduction of slots at Mexico City Airport (AICM), from 61 to 43 per hour.

3. U.S. carriers were more cautious with beach route capacity in particular, a flat investment year-on-year.

AFAC’s latest data shows Q1 2025 passenger growth at 3.5% year-over-year, suggesting a recovery is underway. But capacity grew 5%, pushing load factors down. The big three airlines — Aeroméxico, Volaris, and Viva — saw a 4–5 point drop in load factors, dipping into the mid-to-high 70s in some cases — the worst performance since the pandemic.

Financially, Aeroméxico performed well with a 12% operating margin and $142 million in profits. Volaris and Viva, however, posted combined operating losses of $128 million, down 87% from last year.

So, while Q1 2025 started better than the end of 2024, it is due in part to increased capacity — not stronger demand. Lower fares and declining load factors in a weak economy could spell trouble ahead.

Arturo: Let us look at the near future — say, the next 3–4 months. How is the summer shaping up?

Nicolás: It depends on the region. Four main factors are shaping the outlook:

1. Trade wars and tariffs — affecting global GDP and therefore travel demand.

2. Currency depreciation — making dollar-denominated travel more expensive.

3. Supply chain delays — still causing aircraft and parts shortages.

4. Sustainability restrictions — especially in Europe, where airport noise limits are cutting flight volumes.

Regionally:

• Latin America: Positive signals. LATAM Airlines raised earnings forecasts, citing strong domestic markets in Brazil and Argentina. Gol is still cautious and has not confirmed Chapter 11 exit. Copa plans to expand its 737 MAX fleet to 114 and hire over 500 staff. Avianca is increasing connectivity, launching more flights to Europe.

• Europe: Optimistic, especially on non-U.S. markets (e.g., Latin America, Africa, Asia). Lufthansa, Air France-KLM, and IAG expect higher capacity and stable fuel costs.

• U.S.: Concerns about domestic demand softness. United will retire 21 aircraft early; Southwest and Alaska are cutting routes. Consolidation looms (e.g., JetBlue/United? Gol/Azul/Avianca? [Outside USA].

Arturo: Interesting contrast — U.S. airlines are withholding forecasts due to uncertainty, while Europeans are more optimistic.

Nicolás: Yes, Delta’s Glenn Hauenstein — President since 2016 and a key industry voice — emphasized this. Delta is not too worried about transatlantic travel, since 80% of their revenue originates in the U.S. Internal demand volatility is their main concern.

Arturo: How do you foresee it in Mexico Fabricio?

Fabricio: A growing risk of market saturation and overcapacity in Mexico. Airlines have been stimulating demand by discounting fares to the extent they might in some cases not cover operating costs—raising red flags for possible fare wars.

• In Q1 2025, capacity from the three major Mexican carriers grew by 10%. However, for Q2 and Q3, this is expected to slow to around 6%, indicative of a capacity recalibration.

• Viva Aerobus continues its aggressive growth, planning double-digit seat capacity increases, unlike U.S. majors which in some cases are pulling back.

• Easter (Semana Santa) falling in April this year (vs. March in 2024) will help Q2 year-on-year comparisons.

• The summer season will be critical. If airlines achieve solid occupancy at decent fares, it could help offset a historically weak September. But if summer is disappointing, Q3 results could be poor and potentially threatening the entire year’s performance.

Nicolas: While no official recession has been declared, several Latin American countries show signs of economic vulnerability:

• Argentina is in a technical recession with high inflation and collapsing consumption.

• Chile slowed in 2023 and faces a sluggish recovery.

• Colombia and Peru are growing weakly due to low consumption and investment.

• Mexico and Brazil remain more resilient: Mexico benefits from nearshoring and strong exports; Brazil’s growth is driven by agriculture and stable domestic consumption.

Early signs of recession in aviation would likely appear as: •

• Falling fares, due to lower demand.

• Rising empty seats (lower load factors).

• Increased industry consolidation, as weaker airlines struggle to remain competitive.

Continue following us at www.altitudeaviationleaders.com.mx

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