Rising Challenges for Airlines—Low-Cost Carriers in a Pickle

After a strong post-pandemic recovery, airlines in North America and Europe are facing various challenges: rising operating costs, geopolitical issues, Airbus and Boeing delivery delays, and weakening pricing power. Low-cost carriers (LCCs) in general are feeling more pressure than their full-service carrier (FSC) counterparts.

Key Highlights
-- Many airlines in North America and Europe are struggling to keep up with strong financial performance posted in 2023, with LCCs generally feeling more pressure than FSCs.
-- High operating costs and weakening pricing power are affecting profitability, while some markets have structural challenges.
-- Challenges are likely to continue in the near term with some gradually recovery expected in 2025. Smaller LCCs could see their credit profile worsening more significantly.

According to Rohit Kumar, Assistant Vice President, Corporate Rating, Diversified Industries, "Established LCCs with strong market share are likely to navigate through this challenging environment with some deterioration in credit metrics, while the credit profile of smaller airlines may worsen more significantly."