Capacity growth

In July 2016, Southwest Airlines’ (LUV) capacity grew by 2.3% YoY (year-over-year). This growth was slower than in any other month in 2016. The highest growth of 14.7% YoY was seen in February 2016. YTD (year-to-date), LUV’s capacity growth stands at 6.1%, while in fiscal 2015, capacity growth stood at 7.3% YoY.

Southwest Airlines’ Capacity Growth Continued in July

An airline’s capacity is measured using ASMs (available seat miles). ASM is the number of seats available with the number of miles that can be flown.

Notably, Southwest Airlines makes up 1% of the iShares Edge MSCI Multifactor Industrials ETF (INDF).

Low crude prices

Lower fuel prices provided Southwest’s much-needed boost for capacity expansion, and crude prices have stayed low in 2016. Jet fuel makes one of the major expenses for airlines, and so profits have increased multifold for these companies. Without hedging, the profits for airlines would have been even higher.

LUV has seen a 35% YoY increase in net income, and its operating margins improved to ~15% in 2Q16 from 12% in 2Q15.

Outlook

LUV was prudent about its capacity growth in 2015 and has been as well in 2016, taking care to match growth closely with traffic growth. LUV’s planned capacity expansion for 2016 is between 5%–6%. However, traffic growth has lagged behind capacity growth in July 2016.

You can also read about the July 2016 performances of Delta Air Lines (DAL), United Continental Holdings (UAL), Alaska Air Group (ALK), and JetBlue Airways (JBLU) by clicking “Record Declines Are Preventing Delta’s Stock from Flying High,” “United Continental’s July 2016 Performance: What’s the Outlook?,” “Your Guide to Alaska Air Group’s July 2016 Performance,” and “Does JetBlue Airways’ July 2016 Performance Suggest a Turnaround?”

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