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American’s Pacific market growth can’t offset other regions’ drop

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Strong traffic, capacity growth in Pacific market

In November, American Airlines’s revenue passenger mile (or RPM) declined again by 0.5% to 16,163 million after increasing slightly by 0.2% in October. Traffic in the domestic market remained flat and international traffic declined by 3.1%.

In the international market, only the Pacific region had a very high positive growth of 14.6% in November and 16.7% in October. This was driven down by a decrease of 7.8% in the Atlantic region and 3.6% in the Latin American region. However, the overall year-to-date traffic growth was 1.2%. During this period, demand growth was positive in all markets except the Atlantic.

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American reported a 0.9% growth in capacity in November and 0.5% growth in October. Its capacity in domestic market grew by 0.4%, while the international market capacity growth was higher (1.2%) and was driven by the 16.1% growth in Pacific market. Although capacity declined in Atlanta, the company recorded an overall increase of 0.9%. The year-to-date growth in capacity was positive in all markets.

Capacity utilization, growth

Capacity utilization decreased to 77.7% in November 2014 from 78.8% a year ago due to lower utilization in all markets.

Traffic and capacity growth was weak for American Airlines (AAL) and United Continental Holdings (UAL), leading to a decline in load factors for both airlines in October and November. Its peers, including Delta Air Lines (DAL), Alaska Air Group (ALK), JetBlue Airways (JBLU), and Southwest Airlines (LUV) recorded strong traffic growth.

Downward revision of 4Q14 unit revenue growth

The company revised down its 4Q14 unit revenue, or passenger revenue per available seat mile (or PRASM), projection to -1% to 1% in November from 0% to 2%. However, there has been no change in its pretax margin excluding special items estimate of 10% to 12%.

Investors can invest in companies like American Airlines through ETFs such as the iShares Transportation Average ETF (IYT), which holds ~38% in airline stocks. For a complete company overview of American Airlines, read Market Realist’s series, Must-know: An overview of the American Airlines Group.

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