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Is American Airlines’s Capacity Growth Finally Slowing Down?

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American Airlines’s capacity

American Airlines’s (AAL) capacity grew 0.1% year-over-year (or YoY) in November 2016, similar to the growth seen during most of 2016. Year-to-date, AAL’s capacity has grown 1.9%. This is higher than the total capacity growth for fiscal 2015, which was 1.1%.

Airline capacity is measured using available seat miles (or ASM). ASM is calculated as the number of seats available multiplied by the number of miles.

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Domestic capacity

For November 2016, American Airlines’s (AAL) domestic capacity fell 0.6%. On the other hand, AAL’s peers Delta Air Lines (DAL), United Continental (UAL), and Alaska Air Group (ALK) have also increased their domestic capacity. As a result, the increased competition adversely impacted yields.

International capacity

American Airlines’s international capacity fell 2%. This decline resulted from a 9.7% YoY fall in its Atlantic market capacity, as well as a 9.4% YoY fall in its Latin America capacity. On the other hand, its Pacific market capacity rose 39.5%.

Outlook

For 2016, American Airlines (AAL) expects its capacity to grow 2%, driven equally by growth in the domestic and international markets. Its domestic and international capacity are expected to grow 2%. This is in contrast to the earlier plan of growing its international capacity by 6%. This growth is intended to increase AAL’s relevance in the Asia-Pacific market from the distant third position it currently holds after United Continental and Delta Air Lines.

Investors can gain exposure to American Airlines by investing in the PowerShares Dynamic Large-Cap Value Portfolio ETF (PWV), which invests 1.4% of its portfolio in AAL.

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