Supply and demand are coming back into balance in the airline industry, meaning airfares are shooting higher again after an extended downtrend.
The latest consumer price index report showed airfares jumped 4% in July from June, marking the first monthly increase since January.
For much of the peak travel season, consumers enjoyed lower prices. Airfares ticked down 0.1% in June and fell 2.7% in May from the prior month. But those days look to be over for now.
Airlines are trimming flights more aggressively than usual as the summer winds down. Domestic capacity among U.S. airlines has dropped 6% in August versus July, according to data from Cirium cited by CNBC.
That’s bigger than the cut of just over 4% during the same period a year ago as well as the 0.6% cut in 2023. And in the pre-COVID summer of 2019, capacity fell by 1.7% between July and August.
The strike at Air Canada could throw another wrench into capacity as the carrier suspends operations. Canada’s top airline operates around 700 flights per day.
Earlier this summer, airlines found themselves with too much capacity as their expectations at the start of the year for another travel boom slammed into President Donald Trump’s trade war in the spring.
After he unveiled much steeper-than-expected tariffs in April, demand for flights slowed as consumers turned cautious about the economy and their finances. To avoid flying empty planes, airlines slashed prices.
But Trump pulled back from his highest levies and signed several trade deals. With some uncertainty easing, airlines have reported that demand is rebounding. In fact, security screenings at airports in July and so far in August are up from a year ago.
“The world is less uncertain today than it was during the first six months of 2025 and that gives us confidence about a strong finish to the year,” United Airlines CEO Scott Kirby said last month.
