Traffic exceeds capacity growth rate
In the first nine months of 2018, American Airlines’ (AAL) traffic (revenue passenger miles) grew 2.7% YoY (year-over-year)—higher than its capacity growth of 2.2% during the same period. The company’s traffic growth has exceeded its capacity growth rate in two of the last three quarters.
American Airlines reported traffic growth rates of 3.8%, 2%, and 2.3% in the first, second, and the third quarters, respectively. Its capacity growth rates for the respective quarters were 2.3%, 1.6%, and 2.7%, respectively.
Strong traffic growth across the company’s domestic market has mainly driven its consolidated traffic in 2018 so far. In the domestic market, American Airlines’ traffic growth rate of 2.4% in the first nine months was higher than its capacity growth rate of 1.4%. In the third quarter, traffic grew 2.1% in the domestic market, while capacity increased 2.2%.
American Airlines’ international traffic grew 3.3% YoY in the first nine months of 2018—lower than the capacity growth rate of 3.8% during the same period. The Atlantic market’s traffic increased 2.4% YoY, the Latin American region’s traffic increased 4.2% YoY, and the Pacific region’s traffic increased 3.2% YoY. Capacity growth during the same timeframe in the Atlantic, Latin American, and Pacific regions were 3.4%, 3.4, and 5.7%, respectively.
In the third quarter, the company’s international traffic increased 2.7% YoY—lower than its capacity growth rate of 3.7%. The Atlantic region’s traffic grew 3.9% YoY, the Latin American region’s traffic grew 0.7% YoY, and the Pacific region’s traffic grew 3.4% YoY. Capacity growth during the same timeframe in the Atlantic, Latin American, and Pacific regions were 2.4%, 4, and 6.4%, respectively.
Lower airfares have been a key growth driver for American Airlines’ traffic in the past two years. However, rising fuel costs are expected to lead to high input costs for the aircraft carrier, which will make lower airfares difficult. Therefore, the company is adding capacity and managing costs to continue providing customers with a cheaper flight experience.
Furthermore, travel demand is likely to remain strong in the quarters ahead due to the improving global economy, mainly in the United States and Europe. Also, the latest projections of Airlines for America for travel demand during the Thanksgiving holiday season bode wells for air carriers (IYT). According to the trade organization’s estimates, passenger travel is set to increase 5.5% YoY during the Thanksgiving holiday period (November 16 to November 27) mainly due to cheaper airfares.