Will Alaska Air’s Unit Revenues Continue to Fall in September?

The load factor is the most commonly used measure for an airline’s capacity utilization. It’s calculated as revenue passenger miles divided by available seat miles. A higher load factor indicates better utilization of aircraft capacity.

If traffic growth lags behind capacity growth, utilizations will decline. This has been the case with Alaska Air Group (ALK) since January 2015 (except in March, April, and May 2016 when utilizations improved).

For August 2016, Alaska Air Group’s utilization fell by 0.9 percentage points YoY (year-over-year). YTD (year-to-date) in August 2016, the utilization fell by 0.6 percentage points.

If utilizations continue to fall, it will have a negative impact on Alaska Air Group’s unit revenues.

Unit revenue is a measure of passenger revenue earned by the airline per available seat mile, also known as PRASM. Like other airlines in the industry, Alaska Air Group’s unit revenues have been falling. Its PRASM fell by 7.7% to 10.84 cents in 1Q16 and 7.7% to 11.42 cents in 2Q16.

Foreign currency fluctuations and lower fuel surcharges in the international market will continue to have a negative impact on Alaska Air Group’s unit revenues.

Alaska Air Group doesn’t give any future unit revenue guidance. However, we can expect the PRASM to continue to fall because increasing competitors and the oversupply situation continue to plague the industry.

Alaska Air Group’s legacy peers—Delta Air Lines (DAL), American Airlines (AAL), and United Continental Holdings (UAL)—expect their unit revenues to fall.

Alaska Air Group forms 4% of the DWA Consumer Cyclicals Momentum ETF’s (PEZ) holdings.