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Impressive Traffic Numbers for American Airlines in May 2015

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Capacity growth greater than demand

American Airlines Group (AAL) is one of the six major airlines and serves more than 50 countries. The company underwent a merger with US Airways, making it one of the most widely operated airlines in terms of traffic and capacity in the US and internationally.

In May 2015, American Airlines increased its capacity by 2.1% year-over-year, while revenue passenger miles, an indicator of airline traffic, grew by 0.7% year-over-year. This strength was seen primarily in the Pacific business region, which was able to mitigate the weakness in its Latin America operations.

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American Airlines and United Airlines (UAL) saw the lowest growth in traffic demand among the six major airlines, with 0.7% and 0.5%, respectively. Alaska Airlines’ (ALK) traffic increased by 10.4%, JetBlue’s (JBLU) traffic rose by 8.4%, Southwest Airlines’ (LUV) traffic increased by 8.5%, and Delta Air Lines’ (DAL) traffic rose by 2.7%. These airlines are a part of the iShares Transportation Average ETF (IYT), which holds ~38% in airline stocks.

Pacific region leads growth ladder in May

The Pacific region was undoubtedly the best-performing region for American Airlines in May. The region saw a robust 45.3% year-over-year growth in traffic and a 46.3% year-over-year growth in capacity, measured in available seat miles.

The region’s load factor, or capacity utilization, saw a marginal decline of 0.6%. Air traffic growth was primarily driven by higher travel demand and American Airlines’ continual route expansion measures.

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Weak YTD results

American Airlines’ (AAL) impressive operational performance for May 2015 has not been able to make up for the company’s weak year-to-date performance. On a year-to-date basis, traffic fell in both its domestic and international markets, except the Pacific region. The company’s capacity also fell marginally by 0.1% year-over-year on a consolidated basis.

Long-term expectations

For 2Q15, American Airlines expects its PRASM (passenger revenue per available seat mile) to decline by ~6%–8%. This decrease is primarily driven by low oil prices and foreign currency exchange rate risks the airline faces due to the global nature of its operations.

When the merger between US Airways and American Airlines is complete, the company expects to see significant, long-term savings in the form of improved schedules and routes, larger facilities, stronger management, and increased passenger loyalty.

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