We track forward-looking published capacity on a weekly basis and examine and call out notable changes in a note we publish every Monday morning. We just started looking at summer capacity for 2019, and while published data will change, we make our own adjustments and conclude that U.S. airlines will accelerate domestic ASM growth from +4.6% y/y in the Jan-Apr time period to a growth rate of +5.1% y/y in the May-Aug period. We believe LUV, JBLU, SAVE, and ALGT have “under-loaded” capacity while AAL and DAL have “over-loaded” capacity for the summer period. This is customary and isn’t a concern. But what is a concern is the level of overall growth we’re seeing, despite the likely sad truth that each airline should probably grow without reverence to the industry unless all others aren’t.
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CPA reported 4Q18 EPS of $1.04, below our estimate of $1.29 and consensus of $1.12. CASMx was better than we expected but not good enough to offset lower 4Q RASM and higher non-op expense relative to what we assumed. CPA raised its 2019 EBIT margin guide of +11-13%, by 1pp to +12-14%, entirely on fuel, as we expected. CPA’s guidance implies 2019 EPS of ~$6.90 using a 13.0% margin midpoint, below current published consensus of $7.69 and further below our estimate of $7.94, which isn’t great for a stock that closely tracks EPS estimate revisions. We believe CPA was a popular name into this print and this result and guide may be a bit worse than most expected.
Scheduled system seat capacity for the May-Aug four-month period shows seats +4.2% y/y, flat w/w (still no LUV Hawaii in there, either), but there were changes. Domestic seat growth was flat w/w at +4.1% y/y as additions by ALK and SAVE were offset by cuts by AAL, DAL, and UAL. Pacific capacity came down 1pp w/w to -0.2% y/y on cuts by UAL. Transatlantic was flat w/w at +5.8% y/y (technically down 1bp). Latin was up 7bp w/w to +4.7% y/y due to rounding. International capacity growth as a whole came down 8bp w/w to +4.4% y/y. Domestic competitive capacity was flat w/w at +3.9% y/y.
This week UAL announced plans to reconfigure some of its aircraft to add more premium seats. The most interesting part, in our view is the addition of a new aircraft type: the two-class, 50-seat CRJ-550, which will be a reconfigured 70-seat CRJ-700. That’s what we focus on here, as UAL creatively works to close yet another gap to the competition.
Scheduled system capacity for Jan-Apr four-month period shows seats +3.9% y/y, flat w/w. Domestic seat growth ticked up 4bp w/w to +3.9% y/y due to rounding as additions by LUV and SAVE were slightly offset by cuts by HA and AAL. Pacific capacity was flat w/w at -1.4% y/y (technically down 1bp). Transatlantic was flat w/w at +3.2% y/y (technically up 2bp). Latin was also flat w/w at +5.7% y/y. International capacity growth as a whole was flat w/w at +4.3% y/y. Domestic competitive capacity was up 13bp w/w to a still reasonably low +3.7% y/y.
RASM guides for 1Q19, so far, have been mostly in line with, or better than, expectations. But 1Q RASM guides are hard, as March contains the most traffic of any other “third month” of all four quarters (37% of RPMs), making it hard to forecast. Of all initial 143 quarterly RASM guides over the last six years, the 1Q guides were the most frequently missed to the downside (52% of the time). That said there are certain underlying, highly static factors that should help investors feel better (or worse) about RASM headwind factors that help provide underlying context for each guide.
Scheduled system capacity for Jan-Apr four-month period shows seats +3.9% y/y, flat w/w. Domestic seat growth was flat w/w at +3.8% y/y as additions by SAVE were slightly offset by a delayed launch at Paine Field by ALK due to the government shutdown, so merely just timing there. Pacific capacity was flat w/w at -1.4% y/y. Transatlantic ticked up to +3.2% y/y from +3.1% y/y last week due to rounding (technically up 3bp). Latin was also flat w/w at +5.7% y/y. International capacity growth was flat w/w at +4.3% y/y (technically up 1bp w/w). Domestic competitive capacity was up 23bp w/w to +3.5% y/y.
On Wednesday (1/23/19) the TSA screened 1.8m passengers in the U.S., the same amount they screened last Wednesday (1/16/19). According to the TSA, 99.9% of those passengers waited less than 30 minutes at airport security. 96.3% waited less than 15 minutes, up from 95.4% last Wednesday. So far, the impact from the shutdown is having minimal impact on airlines but the maniacal media focus on the topic, including on airline earnings calls yesterday ad nauseum, has the potential to scare some of the more marginal traffic away if things get worse. And by that we don’t mean people won’t travel, we mean they may find another way to get there if such options exist: specifically driving or taking Amtrak, mainly.
Scheduled system capacity for Jan-Apr four-month period shows seats up 3.9% y/y, flat w/w. Domestic seat growth was flat w/w at +3.8% y/y as additions by SAVE were slightly offset by cuts from DAL and ALGT. Pacific capacity was flat w/w at -1.4% y/y (technically up 1bp w/w). Transatlantic was flat w/w at +3.1% y/y. Latin was also basically flat (down 2bp w/w) but ticked down to +5.7% y/y due to rounding. International capacity growth was flat w/w at +4.3% y/y (technically down 1bp w/w). Domestic competitive capacity was flat w/w (technically up 3bp w/w) at +3.3% y/y.
RASM is outpacing peers, they are clearly taking share, and management sounds as optimistic as ever. Part of what UAL is doing is improving the utility of its hubs. Roughly two years in, we now have some decent data available to evaluate a few things: (1) which airlines are in the crosshairs of UAL’s growth, (2) if those airlines have responded to UAL’s growth, at least in those markets, (3) the impact to competitor airline load factors in those markets, and (4) UAL’s success rate.
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