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American Airlines Adds Capacity to Cope with Rising Demand

Anirudha Bhagat - Author
By

Nov. 19 2018, Updated 12:50 p.m. ET

Additional capacity

American Airlines (AAL) is adding capacity to capitalize on the growing opportunities in the improving global economy, mainly the United States and Europe. In the United States, an improving GDP growth rate, a healthy job market, and a steady increase in wages are driving travel demand.

American Airlines is one of the few leading airline (JETS) companies that have been aggressively adding capacity (average seat miles). In the third quarter, American Airlines increased its capacity by 2.7% on a YoY (year-over-year) basis. In the first three quarters of 2018, American Airlines’ capacity has risen 2.2% YoY, much more than its growth in 2017, when it increased its capacity by 1.1%.

By region, the company increased its domestic market capacity 2.2% in the third quarter and 1.4% in the first nine months of 2018. In the international market, its capacity growth was 3.7% in the third quarter and 3.8% in the first three quarters.

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In the international market, American Airlines increased its capacity the most in the Pacific region by 6.4%, followed by Latin America’s 4% and the Atlantic’s 2.4%, during the third quarter. In the first nine months of the year, its capacity growth in the Pacific, Latin America, and the Atlantic was 5.7%, 3.4%, and 3.4%, respectively.

Outlook

United Continental is aiming for capacity growth of 2.5% in 2018. The company has been increasing its capacity to lower its fleet costs and compete aggressively against low-cost carriers.

The company’s top peers are also aggressively increasing their abilities to take advantage of the growing opportunities in the improving global economy and the strong forecast for air travel. As per the latest report published by Airlines for America, passenger travel is expected to increase 5.5% YoY during the Thanksgiving holiday period (November 16 to November 27) mainly due to cheaper airfares.

During the third quarter, Southwest Airlines (LUV), Delta Air Lines (DAL), and United Continental (UAL) increased their capacities by 3.9%, 3.9%, and 5.1%, respectively.

In the next article, we’ll see if United Continental is driving enough traffic to utilize its extra capacity.

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