Traffic growth lags capacity
In August, Southwest Airlines’ (LUV) traffic grew 1.3% YoY (year-over-year), which was lower than its capacity growth of 2% YoY for the month. Its traffic growth has been lagging capacity growth for the past five months. From January to March, its traffic growth exceeded capacity growth.
YTD (year-to-date) as of August, Southwest Airlines’ (LUV) demand has increased 2.6% YoY, matching its capacity growth for the same period.
Regional player JetBlue Airways’ (JBLU) demand growth has exceeded its capacity growth YTD as of August. Legacy player United Continental’s (UAL) demand growth has also exceeded its capacity growth for the same period.
On the other hand, Delta Air Lines’ (DAL) traffic growth has matched its capacity growth through August. For details, read Delta Air Lines Down 3% after Reporting Record August Traffic.
An increase in fuel costs is expected to lead to high input costs for Southwest Airlines, which will make lower airfares difficult to come by. Lower airfares have been a key growth driver for airline traffic in the past two years.
Although the International Air Transport Association expects passenger travel demand to continue to grow in 2018, growth is expected to be less than last year as demand drivers slow down.
Next, let’s take a look at Southwest Airlines’ capacity utilization. Investors can get exposure to Southwest Airlines (LUV) by investing in the First Trust Nasdaq Transportation ETF (FTXR), which invests 1.4% of its portfolio in the stock.
Due to increasing crude oil prices, Southwest Airlines (LUV) expects fuel costs to rise more in the third quarter.
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