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UAL’s Traffic Growth Exceeds the Capacity Growth Rate

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Traffic exceeds the capacity growth rate

In October, United Continental’s (UAL) traffic (revenue passenger miles) grew 7.5% YoY (year-over-year)—much higher than its capacity growth of 5.9% during the same period. The company’s traffic growth has exceeded the capacity growth for six consecutive months. So far in 2018, United Continental has reported a higher traffic growth rate compared to the capacity growth in every quarter except January and April.

YTD (year-to-date) as of October, United Continental’s traffic has increased 6.3% YoY compared to the capacity growth of 4.7% YoY. The 2018 traffic growth rate is higher than the 2017 growth rate of 2.8%.

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Strong traffic growth across the company’s international operations mainly drove the consolidated traffic last month. United Continental’s international traffic grew 9.6% YoY in October—higher than the capacity growth rate of 5% during the same period. The Atlantic market’s traffic rose 17.3% YoY, the Latin American region’s traffic increased 6.7% YoY, and the Pacific region’s traffic grew 2% YoY.

YTD as of October, the international market’s traffic has increased 5% YoY—higher than the capacity growth rate of 2.1%. The Atlantic region’s traffic has risen 11.8% YoY, the Latin American region’s traffic has risen 0.4% YoY, and the Pacific region’s traffic has risen 0.5% YoY.

In the domestic market, United Continental’s traffic growth rate in October was slightly lower than the capacity growth. Last month, the traffic grew 6.2% in the domestic market, while the capacity increased 6.6%. YTD as of October, the domestic region witnessed 7.3% YoY traffic growth, while the capacity growth was 6.8% during the same period.

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Outlook

Lower airfares have been a key growth driver for United Continental’s 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. Although the International Air Transport Association expects passenger travel demand to continue to grow in 2018, the growth is supposed to be less than last year as the demand drivers slow down.

Southwest Airlines (LUV) and Delta Air Lines (DAL) provided their October traffic growth data. The data show that Southwest Airlines and Delta Air Lines’ traffic growth rates have lagged their respective capacity growth. Other players in the space (JETS) including American Airlines (AAL) and Alaska Air (ALK) haven’t reported their October numbers yet.

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