This is an exciting time for airlines as they begin to implement AI use cases and deploy new aircraft types at scale. Revenue per average seat kilometer (RASK) continues to rise modestly, due in part to an increase in premium offerings and improved capacity discipline.
However, ongoing growth is fragile. There remains a continued possibility of geopolitical turbulence, disruptions to OEM production, and economic shifts. Costs per average seat kilometer (CASK) are rising faster than revenues for many carriers due to increases in maintenance, crew, ground handling, and other expenses—putting pressure on already thin margins.
The accompanying slideshow outlines how this profit story varies by airline and region. For example, full-service carriers (FSCs) in Asia and North America are outperforming low-cost carriers (LCCs), even as LCCs in the EU continue to perform strongly.
The 2025 State of Play
Global passenger traffic rose 6% in 2025 year on year (YoY), despite lingering economic uncertainty and geopolitical conflicts, following the 6.5% increase in 2024 reported in our Air Travel Demand Outlook 2025. North America and China—traditionally strong drivers of growth—lagged the global industry, increasing just 1% and 5%, respectively, due to trade tensions and slowing economic growth. In contrast, Asia-Pacific experienced outsize growth, with traffic in India up 9% YoY due to the country’s expanding middle class and rising investments in domestic airport infrastructure, and up 15% in Japan and 11% in Thailand, primarily due to increased tourism.
Supporting the industry’s growth, OEMs were able to ramp up aircraft production in 2025 due in part to the FAA’s approval to increase Boeing’s 737 MAX production cap. Meanwhile, airlines continued to roll out several sustainable air travel initiatives, motivated by new mandates such as the EU’s directive that fuel suppliers at EU airports use a minimum of 2% sustainable aviation fuel starting in 2025, rising to 70% by 2050.
What 2026 May Hold
Several macro factors are likely to create volatility in 2026, shifting the aviation industry’s supply and demand patterns, including ongoing geopolitical turbulence, economic uncertainty, and infrastructure reliability issues driven by IT outages and air traffic controller shortages, among other factors.
Industry revenues will continue to grow despite volatility, with new fleet types such as the A321XLR long-range narrowbody aircraft from Airbus allowing airlines to open routes that were previously economically inviable, reshaping their networks. In addition, we are cautiously optimistic that OEMs can increase their aircraft delivery rates after several challenging years, an essential factor in reducing the backlog of aircraft orders and improving flight capacity.
At the same time, cost increases are outpacing revenue growth. Crew costs rose 5% to 7% YoY in 2025 following major contract renewals across Europe and North America. And ground-handling costs were up 4% to 7% YoY as airports and third-party providers passed through wage and inflation adjustments.
Many airlines are responding by working to permanently shift their cost structures, whether through fundamental cost transformation, AI usage, or consolidation. For example, 97% of airlines say they plan to integrate or are already integrating AI into their global business, especially on the maintenance and operations side. Many have already begun to move forward with individual AI initiatives to improve efficiency.
With these factors in mind, three potential demand scenarios for 2026 emerge. (See Exhibit 1.)
(Note: This article was produced with information, data, and analyses available as of November 2025, and the insights and figures should be interpreted as point-in-time assessments.)
How These Scenarios Could Play Out
Our base case assumes that revenues per passenger kilometer (RPKs) will grow at a CAGR of about 5.8%, in line with country- and region-specific GDP and elasticities. Key assumptions include stasis in trade wars and conflicts across the globe, persistent labor cost pressures (with some cost increases passed on to passengers), and capacity cuts for LCCs in North America. In addition, AI leaders will begin to realize an increase in aircraft utilization due to successful use cases in operations and maintenance.
While OEM delays continue, our base case also assumes that the gap between expected and actual production of aircraft and engines will gradually decrease and new fleet types will replace aging equipment, allowing some incremental traffic from new routes.
Should global conflicts and trade pressures lessen and cost pressures stabilize, we expect more favorable results, with 10% CAGR or more in RPKs. This upside case also assumes continued growth in OEM aircraft delivery rates, including new narrowbody, long-distance aircraft that create incremental supply and allow the establishment of new routes, particularly internationally.
Nonetheless, should regional conflicts and trade restrictions escalate, they may suppress travel, as might a rise in labor and fuel costs (if a significant portion is passed on to passengers). As a result, our downside case assumes an increase in RPKs of just 0.5%.
What Our 2026 Regional Deep Dives Show
Our global projections aggregate impact across regions, including the nine deep dives into specific regions from our base case in Exhibits 2 and 3. These analyses reveal continued slow demand growth for 2026 in North America—with a base case of 2% growth YoY due to lower transborder demand and geopolitical turbulence—and in China, with a base case of 5% growth YoY due to GDP and population growth declines.
They also reveal areas of strong growth projected for 2026, including India, at 12% YoY due to rising GDP, and the rest of Asia, at 8% YoY due to accelerating demand from the emerging middle class, ongoing infrastructure investment, and continued strong tourism growth in Japan and Thailand.
Continued Uncertainty Requires Flexibility and Modernization
Across the globe, economic, geopolitical, and infrastructure uncertainty continues to cause hundreds of thousands of flight cancellations each year. Leading factors include gate capacity constraints, airport construction, staffing shortages (including persistent air traffic controller shortages in many countries), and IT outages affecting aviation authority technology.
While airlines can do little to prevent such issues, they can build additional flexibility into their operations and increase communications with airports and other partners to get ahead of potential disruptions. Meanwhile, airlines should maintain their active cost focus while prioritizing technology investments to upgrade older systems—building the data capabilities to support future AI use cases.
