American Airlines’ Traffic Growth Outpaced Its Capacity Growth

American Airlines’ (AAL) traffic (revenue passenger miles) growth has exceeded its capacity (available seat miles) growth in the first nine months of 2018. During the period, the company registered a 2.7% YoY increase in its traffic, while capacity growth remained at 2.2%.

Moreover, American Airlines’ traffic growth has exceeded its capacity growth rate in two of the last three quarters. The air carrier reported traffic growth rates of 3.8%, 2%, and 2.3% in the first, second, and the third quarters, respectively. The airline’s capacity growth rates for the respective quarters were 2.3%, 1.6%, and 2.7%, respectively.

Strong traffic growth in the domestic market has mainly driven the company’s consolidated traffic in 2018 so far. In the US market, American Airlines witnessed traffic growth of 2.4% in the first nine months, which was significantly higher than its capacity growth rate of 1.4%. In the third quarter, the company registered a 2.1% increase in domestic market traffic, while capacity grew 2.2%.

In the international market, American Airlines’ traffic increased 3.3% YoY in the first nine months of 2018, lower than the capacity growth rate of 3.8% during the same period. The Latin American region’s traffic increased 4.2% YoY, the Atlantic market’s traffic increased 2.4% YoY, and the Pacific region’s traffic increased 3.2% YoY. During the same timeframe, capacity growth in the Latin American, Atlantic, and Pacific regions were 3.4%, 3.4%, and 5.7%, respectively.

In the third quarter, American Airlines’ international traffic increased 2.7% YoY, one percentage point lower than its capacity growth rate of 3.7%. The Latin American region’s traffic grew 0.7% YoY, the Atlantic region’s traffic grew 3.9% YoY, and the Pacific region’s traffic grew 3.4% YoY. During the same timeframe, capacity growth in the Latin American, Atlantic, and Pacific regions was 4%, 2.4%, and 6.4%, respectively.

Low airfares have been a key growth driver for American Airlines’ traffic in the past few years. Moreover, declining fuel costs are expected to lead to lower input costs for the aircraft carrier, which will make lower airfares sustainable in the near future, thereby driving more demand for air travel. Therefore, the company is adding capacity to capitalize on growing opportunity.

Moreover, travel demand is likely to remain strong in the quarters ahead due to the improving global economy, mainly in the United States and Europe. According to the latest report from the Federal Aviation Administration, the number of US airline passengers will increase by 4.7% in 2018 and then grow at an annual rate of 1.7% in 2019 through 2038. Similarly, international passenger growth is likely to be 5% in 2018 and after that grow at an average yearly rate of 3.3% until 2038.

American Airlines’ top peers (JETS) Southwest Airlines (LUV), Delta Air Lines (DAL), and United Continental (UAL) witnessed traffic growth of 2.7%, 3.8%, and 7.2%, respectively, during the third quarter.