Bank of America’s recent industry review finds that demand and pricing in the airline sector stayed strong through May 2026, with capacity intentions increasingly weighted toward reductions as carriers contend with elevated fuel costs.
Pricing trends continued to strengthen into the second quarter. Airline Fare CPI rose 20.7% year-over-year in April, accelerating from March’s 14.9% gain, and registered 6.3% month-over-month growth. Producer price measures for air passenger services were also firmer - Air Passenger Services PPI climbed 11.1% in April, up from an 8.1% increase in March, including a 2.4% month-over-month uptick.
Transactional and ticketing indicators echoed those inflation measures. The Airline Reporting Corporation reported that average ticket prices were 16.2% higher in April compared with a year earlier and remained roughly flat from the prior month. Aggregated Bank of America debit and credit card spending on airlines accelerated in May into double-digit year-over-year growth, driven principally by higher spend per transaction.
Executives attending Bank of America’s Industrials, Transportation & Airlines Key Leaders conference conveyed a consistent message: demand and pricing are strong, but capacity plans are skewed to the downside. Carriers described second-half 2026 plans as flexible and largely dependent on the trajectory of fuel costs, with oil prices cited as staying above $100 per barrel.
On capacity specifics, third-quarter 2026 domestic capacity was lowered by 200 basis points to a projected 1.6% growth since mid-April. The cessation of operations by Spirit accounted for 160 basis points of that reduction. United Airlines pared back its planned growth from 9.4% to 5.2%, a reduction that removed another 80 basis points from industry-wide capacity. American Airlines remained an outlier with growth still planned at 9.3%, contributing 190 basis points to aggregate industry capacity growth.
Summer scheduling is expected to be broadly flat, with further cuts more likely after the peak season. September’s capacity projection sits at 4.1% growth, which remains materially above the flat trend projected for May through August, and Bank of America expects additional adjustments to capacity in the weeks ahead.
Cross-border travel patterns year-to-date show outbound U.S. tourism outpacing inbound. Excluding the Middle East, outbound travel from the U.S. is up 3.7% year-over-year, while inbound visitation is down 3.8%. Conference participants reported they have not observed substantial World Cup-related booking effects to date; United Airlines did note that bookings in North American host cities during the Group Stage are up nearly 20%.
The data and carrier commentary sketch a market with continued pricing power and selective capacity discipline, but with second-half execution hinging on fuel-price dynamics and near-term scheduling decisions by individual carriers.
Key takeaways:
- Airline Fare CPI and Air Passenger Services PPI both accelerated in April, showing strong year-over-year and month-over-month pricing momentum.
- Carriers are signaling reduced capacity growth for third-quarter 2026, with notable cuts tied to Spirit’s cessation and United Airlines lowering its growth plans; American Airlines remains an exception.
- Outbound U.S. tourism is outpacing inbound travel year-to-date, and World Cup-related booking impacts appear limited overall, with some localized increases in host-city bookings.
Risks and uncertainties:
- Ongoing elevated fuel prices - with oil staying above $100 per barrel - are a key determinant of carriers’ second-half capacity decisions and could pressure yields and operating costs.
- Capacity revisions remain fluid; further cuts are expected after summer, introducing uncertainty for supply-demand balance in the latter half of 2026.
- Tourism flows are uneven - outbound travel has outpaced inbound year-to-date - and limited World Cup booking impacts to date leave some demand effects uncertain.