All Bets on Delta: Comparative Analysis of US Legacy Carriers
Snapshot
The sudden and unexpected plunge in oil prices across the globe was a boon for airlines as they saw better cash generation. The airlines are using this opportunity to grow their capacities that had remained more or less stunted since the slowdown in the US economy. The growing demand for airline travel as seen in the previous article is met by either growing capacity or by utilizing it in a better way. In this article, we’ll look at how various legacy carriers have boosted their capacities amid low oil prices.
Capacity growth remains strong
The capacity growth in airlines is measured by using the ASM (available seat miles) parameter. All the legacy carriers in the United States used the opportunity presented by low oil prices to grow their capacities. Until November 2015, Alaska Air Group (ALK) led the capacity growth table with a strong 10.6% YoY (year-over-year) surge in its ASM numbers as you can see in the graph above. It was followed by Delta Air Lines (DAL) as Delta matched its traffic growth with a 4% YoY growth in capacity. In the same period, United Continental (UAL) and American Airline (AAL) grew their capacities by 2.7% YoY and 1% YoY, respectively.
Trend analysis
If we look at the trends, airline capacity has more or less remained at the same level as it was a year ago. Airlines fluctuated between capacity growth and cuts throughout the year, but the overall capacity has been on the uptrend in the long term. The major reason for why capacities didn’t surge higher is the fear of overcapacity in the airline industry. Airlines fear that their capacity growth won’t be matched by demand growth in the future, and that could lead to higher operational costs for air carriers.
However, what remains to be seen is if the capacity growth hampered capacity utilization in the year. Let’s analyze that in the next article.
As a final note, these airlines are a part of the iShares Transportation Average ETF (IYT), investing ~16.9% of its holdings in airline stocks.
Browse this series on Market Realist: