uploads/2017/12/LF.png

Southwest Airlines’ Utilization Has Decreased in 2017

By

Updated

Utilization decrease

An airline’s load factor measures its capacity utilization and is calculated as revenue passenger miles (or traffic) divided by available seat miles (or capacity). A higher load factor indicates better utilization of aircraft capacity.

In November 2017, Southwest Airlines’ (LUV) utilization improved 0.7% year-over-year (or YoY) to 85.8% as its traffic growth exceeded its capacity growth. So far in 2017, LUV’s utilization has improved in five months, with November being the best month of improvement. Its utilization has decreased in four months of the year, with September 2017 seeing the worst fall of 2.5% YoY. For the remaining two months, Southwest Airlines’ utilization was flat.

Year-to-date (or YTD) in November 2017, Southwest Airlines’ utilization decreased 0.2% YoY to 84.0%.

Yields fall again

After a brief improvement in 2Q17, Southwest Airlines’ yields fell again in 3Q17, primarily due to increased competition among low-cost carriers.

The airline’s average passenger fare fell 2.2% YoY in the quarter. This led to a 0.9% YoY fall in yields, leading to a unit revenue fall of 0.5% YoY to 13.5 cents. During that time, unit revenue also felt the impact of LUV’s new reservation system. The airline expects no impact in the next quarter.

LUV’s rival JetBlue Airways (JBLU), on the other hand, posted a unit revenue improvement. The only other airline to do so was American Airlines (AAL). However, JetBlue has also forecast a bleak outlook for the fourth quarter of the year. In contrast, both peers Delta Air Lines (DAL) and American Airlines expect unit revenue improvements in the next quarter.

To read about LUV’s 3Q17 performance, read Southwest Airlines Posts Strong 3Q17 Results. Southwest Airlines makes up ~1.7% of the total holdings of the PowerShares BuyBack Achievers ETF (PKW).

More From Market Realist