Scheduled system seat capacity for the May-Aug four-month period shows seats +4.4% y/y, down 16bp w/w. Domestic seat growth was down 14bp w/w to +4.5% y/y on cuts by almost all carriers we track. Pacific capacity was flat w/w at +0.2% y/y, transatlantic was flat w/w at +5.7% y/y, and Latin was down 49bp w/w to +3.7% y/y. Int’l capacity growth was down 29bp w/w to +3.9% y/y. Domestic competitive capacity came down 25bp w/w to +4.2% y/y. All in, MAX-related cancelations drove 37% of the gross domestic capacity reductions. Excluding all MAX-related cancelations, this summer’s domestic capacity growth rate would have ticked up by 6bp w/w due to offsetting adds elsewhere.
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We survey investors quarterly to quantify sentiment and views on key topics. This quarter we had 92 replies. Thanks for replying, if you did. For context, about half of the survey answers were submitted before DAL’s investor update on Tuesday morning. We delineate the before/after replies where it matters. This survey had some atypically polarized and useful results.
Scheduled system seat capacity for the May-Aug four-month period shows seats +4.6% y/y, flat w/w. Domestic seat growth was flat w/w at +4.7% y/y as reductions by DAL and HA were slightly offset by adds from SAVE and ALGT. Pacific capacity was flat w/w at +0.2% y/y, transatlantic was flat w/w at +5.7% y/y, and Latin was down 35bp w/w to +4.2% y/y. Int’l capacity growth as a whole was down 22bp w/w to +4.2% y/y. Domestic competitive capacity was also flat w/w and still showing a growth rate of +4.4% y/y for the period.
Our quarterly review of competitive seat growth by airline shows, in aggregate, an uptick in competitive capacity (CC) growth to +2.8% y/y in 2Q19, from +2.5% y/y in 1Q19. Though U.S. airline industry capacity growth is high at +4.3% y/y in 2Q19 (on a seat basis), the +2.8% y/y CC growth rate in 2Q19 is still pretty modest relative to that overall growth rate. Note on CC data: we (and others) focus on this metric but it is flawed as it won’t capture competition on connecting itineraries, which is a growing source of RASM and earnings. Changes in direct CC overlap is certainly important, but it isn’t an all-encompassing view.
Scheduled system seat capacity for the May-Aug four-month period shows seats +4.6% y/y, flat w/w. Domestic seat growth came up 2bp w/w to +4.7% y/y from +4.6% y/y due to rounding as additions by LUV and AAL were slightly offset by cuts from UAL. Pacific capacity was flat w/w at +0.2% y/y (technically down 7bp), transatlantic was flat w/w at +5.7% y/y, and Latin was flat w/w at +4.6% y/y (technically down 2bp w/w). Int’l capacity growth as a whole was flat w/w at +4.4% y/y (technically down 2bp w/w). Domestic competitive capacity was flat w/w at +4.4% y/y (technically up 3bp w/w).
Every Friday, we check the Sunseeker FAQ website to track all changes. We believe no change is too small. This week ALGT changed an FAQ about the pool from, “the resort swimming pool… will be over 1,000 feet long, covering nearly two acres” to a new answer of “Sunseeker Resorts Charlotte Harbor will feature a rooftop swimming pool and jacuzzis as well as an accompanying rooftop bar.” This felt like a significant change. Turns out it is.
Entering quarter end, we’re seeing lines being drawn (and positions being built) on how airlines will report/guide/sound with investor updates and earnings. Some are clearly out of favor with high short interest and relative underperformance (HA) and some are being shunned (ALK) with low short interest and stock underperformance. But only one has high short interest and has relative outperformance to the group – DAL – which may mean it’s set up for a ‘coiled spring’ result, one way or the other, with March traffic likely on 4/2. This mix of outperformance on high short interest isn’t terribly unique in airlines, but when it happens it creates winners and losers.
Scheduled system seat capacity for the May-Aug four-month period shows seats +4.6% y/y, flat w/w (technically up 3bp w/w). Domestic seat growth was flat w/w at +4.6% y/y (technically up 4bp w/w) as cuts by UAL and HA were offset by additions from SAVE and DAL. Pacific capacity was flat w/w at +0.2% y/y, transatlantic was flat w/w at +5.7% y/y, and Latin was flat w/w at +4.6% y/y (technically down 4bp w/w). Int’l capacity growth as a whole was flat w/w at +4.4% y/y. Domestic competitive capacity came up 9bp w/w to +4.4% y/y.
On 4/10/19 we expect JBLU to announce its intention to serve Europe, an initiative management has teased in internal employee memos obtained by the media. We have no clue what they’ll say that day, but we make our best guess here and try to quantify the impact ahead of time.
Some have suggested the grounding of the 737 MAX fleet in the U.S. will be accretive to earnings due to lower capacity. Does that feel right? Higher fuel prices make airlines scale back growth in their least profitable markets in a gradual and orderly fashion while pushing fares higher. A sudden grounding of a 737 MAX merely causes disruption to the schedule, annoyances to passengers, bad press, higher costs to the airline, and brand damage. Airlines won’t be raising fares on this. If anything, this feels like a winter storm, and investors don’t capitalize temporary bumps to RASM caused by uncontrollable events. If you as an investor want to be bullish on airlines, go ahead – just don’t do it because of this.
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