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Airline Capacity Use Stays Volatile: What It Means for Investors

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Analyzing airline load factors

May continued to be a mixed bag for airlines, with volatile capacity utilization. Delta Air Lines (DAL), American Airlines (AAL), Alaska Airlines (ALK), and JetBlue Airways (JBLU) managed to grow their traffic at a higher pace than their capacity growth. As a result, their capacity utilization improved. Delta’s utilization improved by 1.4% to 86.7%, American Airlines’ improved by 0.2% to 82%, Alaska’s improved by 1.4% to 86.5%, and JetBlue’s improved by 0.1% to 84.7%.

On the other hand, utilization at United Continental fell by 0.9% to 81.6%, Southwest Airlines’ utilization fell by 0.4% to 85.4%, and Spirit Airlines’ utilization fell by 1.9% to 85.3%.

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2017 performance

Spirit Airlines, Alaska Air, JetBlue Airways, and Southwest Airlines saw improvement in their utilization in 2016, while Delta’s, American’s, and United’s utilization declined.

This year presents a much better picture. Year-to-date, in May 2017, utilization at all carriers except Spirit Airlines had improved. Spirit Airlines’ utilization fell by 2.2% to 82.8%.

What can we expect?

This year’s utilization data confirms that airlines are serious about maintaining their capacity growth within limits. All airlines are paying more attention to improving their unit revenue. Capacity growth is expected to remain low in 2017. Therefore, investors can expect utilization to improve.

The PowerShares Dynamic Leisure & Entertainment ETF (PEJ) invests ~5.0% of its portfolio in both Delta Air Lines (DAL) and American Airlines (AAL), 4.7% of its portfolio in United Continental (UAL), and 2.7% in JetBlue Airways (JBLU). Next, we’ll analyze the impact of crude oil prices on airlines.

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