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Southwest Airlines Reduces 1Q17 Guidance: Here’s the Flight Plan

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Part 2
Southwest Airlines Reduces 1Q17 Guidance: Here’s the Flight Plan PART 2 OF 5

LUV’s Traffic Growth Slightly below Capacity Growth in February 2017

Traffic growth

For February 2017, Southwest Airlines’s (LUV) traffic grew 1.1% year-over-year (or YoY). This is slightly slower than its capacity growth of 1.2% YoY for the month. LUV’s traffic growth has been lagging its capacity growth intermittently in the past eight months and has lagged its capacity growth consecutively for the past three months.

LUV&#8217;s Traffic Growth Slightly below Capacity Growth in February 2017

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November 2016 was the only month with exceptional performance, helped by heavy Thanksgiving holiday travel. This exceptional performance and the investment by Warren Buffett were also reflected in Southwest Airlines’s stock movement, as we’ll discuss in the final article.

Year-to-date (or YTD) 2017, Southwest Airlines’s traffic increased 2.9%, lower than the 3.8% capacity growth in the same period. For fiscal 2016 and fiscal 2015, its traffic growth has lagged capacity growth.

An airline’s traffic is measured by revenue passenger miles (or RPM), which is the number of revenue passengers multiplied by the total distance traveled.

Passenger travel demand

Global economic growth is the most important determining factor for growth in air travel demand. However, there is considerable uncertainty surrounding this factor in 2017. Despite this, IATA expects global airline travel demand to grow 4%–4.5% in 2017.

Outlook

Despite slowing demand, Southwest Airlines (LUV) still has an edge over legacy carriers. Past trends suggest that growing GDP along with lower airfares could provide LUV with the required boost in traffic.

Please read our February 2017 performance analysis for Southwest Airlines’s peer Spirit Airlines (SAVE). We also provide performance analyses of its other peers, including JetBlue Airways (JBLU) and Allegiant Travel (ALGT) on the Market Realist Airlines page.

Southwest Airlines makes up ~0.31% of the total holdings of the iShares Russell 1000 Growth ETF (IWF), which tracks the Russell index.

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