uploads/2019/01/Chart-2-traffic-Vs-Capacity-1.png

Southwest Airlines: Traffic Growth Lags the Capacity Growth Rate

By

Updated

Traffic lags the capacity growth rate

Southwest Airlines’ (LUV) traffic or RPM (revenue passenger miles) continued to lag its capacity or ASM (available seat miles). The company reported its operating performance on January 8. The traffic growth rate for December, the fourth quarter, and fiscal 2018 remained below the capacity growth rates. The airline’s RPM growth has been lagging the capacity growth rate for nine consecutive months and the last three quarters.

Southwest Airlines’ traffic growth for December, the fourth quarter, and fiscal 2018 was 3.3%, 4.7%, and 3.3%, respectively. During the same periods, the capacity growth rate was 5.4%, 6.5%, and 3.9%.

Article continues below advertisement

To bring down the CASM (cost per available seat mile) and improve the productivity, Southwest Airlines has been retiring its older generation Boeing (BA) 737 Classic fleet. The company has been replacing the fleet with Boeing 737–800 and 700 MAX 8 models. These models have a seating capacity of 175—higher than the 737 Classics’ 125–143 seats. The new models are more fuel efficient and produce 14% less carbon dioxide emissions.

Replacing older aircraft with new aircraft has been increasing Southwest Airlines’ capacity. However, the company didn’t drive enough traffic to fully utilizing the increased capacity and boost its productivity to an optimal level.

Peer comparison

Most of Southwest Airlines’ peers (IYT) have witnessed better capacity utilization. Delta Air Lines’ (DAL) traffic growth of 3.5% has almost matched its capacity growth of 3.6% in 2018.

From January to September, JetBlue Airways’ (JBLU) traffic growth of 7.2% YTD (year-to-date) exceeded its capacity growth of 6.1%. United Continental’s (UAL) demand growth exceeded its capacity growth during the same period. United Continental’s traffic increased 6.4% YTD, while the capacity rose 4.8%.

Advertisement

More From Market Realist