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Can the Airline Industry’s Demand Remain Strong in 2016?

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Airlines industry demand continues to remain strong

Airline industry demand is measured by revenue passenger miles (or RPM). In February 2016, regional players continued to outpace legacy carriers in traffic growth.

Spirit Airlines (SAVE) saw the highest traffic growth of 28% year-over-year (or YoY), followed by Allegiant Travel’s (ALGT) 21% and JetBlue Airways’ (JBLU) 19%. Southwest Airlines (LUV) saw the slowest growth among the regional carriers, with 13.5% growth YoY. Alaska Air Group (ALK) saw 14% YoY growth.

Among the three major carriers, both Delta Air Lines’ (DAL) and United Continental’s (UAL) traffic grew by 5% YoY. American Airlines (AAL) witnessed the slowest growth of ~3% YoY.

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Spring traffic surge

The US airline industry is expected to set a new record in terms of the number of passengers flying this spring. In a recent announcement, Airlines for America, the industry trade organization for the leading US airlines, predicted that a record-breaking 140 million passengers are expected to fly on US airlines this spring. This would beat the peak of 136.2 million passengers in 2015 by ~3%. US airlines have seen an increase of approximately 63,000 passengers per day with ~17 million coming from international flights alone.

The prime reasons behind this demand surge are the improvement in accessibility and lower airfares. To meet the extra demand, airlines are deploying new and larger aircraft on many flights and are aggressively adding newer routes to their maps. Along with low fuel prices, strong investment strategy, and strong management application, these factors have helped US airlines make huge profits.

The PowerShares Dynamic Leisure & Entertainment Portfolio ETF (PEJ) invests 5% of its holdings in each of UAL, DAL, and AAL. PEJ invests 2.7% in Alaska Air Group (ALK).

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