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Southwest Airlines’ Capacity Growth Is In Line with Its Target

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Capacity growth

In November 2017, Southwest Airlines’ capacity increased 2.5% year-over-year (or YoY) after recording growth of 1.7% in October. LUV saw its highest capacity growth of 7.6% YoY in April, and it saw its lowest growth of -1.6% YoY in September.

Peer comparison

Year-to-date (or YTD) in November 2017, Southwest Airlines’ capacity growth stood at 3.7% YoY. Other regional players recorded higher capacity growths. JetBlue Airways’ (JBLU) capacity increased 4.5% YoY in the same period, and Spirit Airlines’ (SAVE) capacity increased 16.2% YoY.

Outlook

For 4Q17, Southwest Airlines is expected to increase its capacity 1%–2% YoY. Its average growth for the first two months of the quarter is 2.1% YoY. For the full year 2017, LUV expects capacity growth of 3.5% YoY—slower than the growth it saw in 2016. Southwest Airlines’ capacity growth in 2016 was 5.7% YoY.

Airlines were seen following capacity discipline in 2017 in a bid to increase their unit revenues and profitability. However, aggressive growth targets by legacy carriers United Continental (UAL) and American Airlines (AAL) have led regional players to respond with higher capacity growth.

Though Southwest Airlines expects its 2018 capacity growth to be lower than the 5.7% YoY it clocked in 2016, its capacity growth is likely to be higher than what it clocked in 2017.

To learn about Delta Airlines’ capacity growth outlook, read Delta Air Lines Capacity Growth on Track to Meet 2017 Guidance. To learn about United Continental’s capacity growth outlook, read United Continental’s Capacity Growth: In Line with Higher Target.

Next, we’ll discuss Southwest Airlines’ demand trends. Investors can gain exposure to Southwest Airlines by investing in the iShares U.S. Consumer Services ETF (IYC), which holds 1.1% of its portfolio in LUV.

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