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Southwest Airlines’ Capacity: Growth Slower Than Guidance

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Capacity growth

In August, Southwest Airlines’ (LUV) capacity increased 2% YoY (year-over-year) after recording growth of 3.2% in July. In May, it had its highest capacity growth of 5.2% YoY. It had its lowest capacity growth of 1% YoY in February.

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Peer comparison

Year-to-date in August, Southwest Airlines’ capacity growth was 2.6% YoY. Delta Air Lines recorded a capacity growth of 3.2% YoY through August, while United Continental (UAL) recorded a 4.4% growth in capacity. Regional player JetBlue Airways (JBLU) recorded capacity growth of 6% YoY. Niche legacy player Alaska Air (ALK) has not yet reported its August traffic data.

Reduces capacity guidance

For the third quarter, Southwest Airlines had guided for a capacity growth of 4.5%–5% YoY. Thunderstorms that affected Denver, Washington, and Baltimore led to 2,000 flight cancellations in July and August.

These cancellations mean reduced capacity growth for the airline this quarter. It now expects capacity growth of 3.5%–4%. Hurricane Florence and other storms may lead to further reduced capacity growth.

In the next part of this series, we’ll look at Southwest Airlines’ demand trends. Investors can gain exposure to Southwest Airlines by investing in the First Trust Industrial/Producer Durables AlphaDex ETF (FXR), which holds 2.1% of its portfolio in LUV.

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