Flying on Fumes: Budget Airlines and the Limits of Growth

The low-cost carrier model has long been heralded as a democratising force in global travel. By stripping away frills, budget airlines opened the skies to millions and reshaped competition in commercial aviation. But in 2025, the model appears to be straining under its own weight.

According to Plimsoll’s latest analysis of leading global budget airlines, turbulence is no longer metaphorical. The financial health of the sector is uneven, and in many cases deteriorating. Nearly half the companies assessed are now flagged as being in some degree of financial trouble.

The most striking finding is that almost half the industry is rated “In Danger” by Plimsoll’s proprietary scoring system. These are firms with a worrying combination of weak financials, negative momentum, and unsustainable structures. Less than ¼ of the companies are rated as “Strong” or “Good”. The remaining are scattered across the “Caution” and “Mediocre” categories. The message is clear. Stability is the exception, not the rule.

The challenges are not new. Rising fuel prices, volatile consumer demand and environmental pressures have long loomed over budget carriers. What is new, however, is the scale of the financial divergence. Almost 25% of companies are currently making a loss, with over 10% doing so for the second consecutive year. According to Plimsoll, these serial loss-makers are compressing margins across the board by undercutting more stable rivals. The result is a race to the bottom that even strong operators cannot entirely avoid.

The valuation picture reflects this pressure. 15% of companies have lost more than a quarter of their value over the past year. By contrast, less than 50% have increased in value, and just over 10% managed gains exceeding 50%. While there are outliers performing well, the average industry profit margin remains modest, at just over 4 percent. The profitable minority of companies enjoy healthy margins at an average of 8.4%, but the remaining companies either sit near breakeven or worse, leaving an average industry profit margin of 4.2%.

Notably, just 20% of the companies analysed have been flagged as acquisition targets. This is significant. M&A interest is often a signal of sector confidence. The lack of obvious acquisition prospects may indicate that even stronger operators carry risk profiles that deter buyers.

The Road Ahead

What comes next for the industry may prove even more contentious. Many budget carriers are pushing harder than ever to extract revenue from "non-core" sources. Charges for seat reservations, hand luggage, and check-in options have become routine. But this patchwork of fees has increasingly attracted the attention of regulators and consumer groups, with legal action already under way in several jurisdictions over transparency and pricing fairness.

At the same time, innovation continues apace. Concepts such as “standing room” seating configurations have been floated again in 2025, not as satire but as genuine cost-saving initiatives. While such ideas generate headlines, they also signal the limits to which budget carriers may be willing to go in pursuit of further yield compression.

Customer fatigue is also setting in. As passengers grow more wary of opaque pricing structures and basic service levels, some are reconsidering the value of low-cost tickets. In an era where customer experience and ethical business practices are once again influencing purchasing decisions, budget carriers may find their traditional competitive edge dulled.

A Model Under Pressure

There is no single prescription for recovery. For some, efficiency gains and rationalised routes may offer a path back to health. For others, the next 12 months may be a question of survival. Plimsoll’s data, which has correctly flagged 9 out of 10 company failures over two years before collapse, suggests that early warning signs are now flashing red.

The low-cost revolution in air travel is not over, but its financial foundations appear more fragile than ever. With litigation rising, innovation becoming more extreme, and profitability concentrated in a shrinking minority, the future of budget aviation looks less like a runway and more like a narrowing corridor.

For directors and investors, this is not a moment to look away. It is time to re-examine the model, before more carriers find themselves grounded.