US airlines cut capacity to trigger PRASM momentum from rising fuel prices

Delta Air Lines and jetBlue Airways are the latest US airlines to trim their capacity forecasts, after the US major global network airlines American and United made adjustments to their projections in early 2016. The latest cuts initiated by US airlines appear to be driven by a continuing depressed pricing environment and rising fuel prices, as oil touches USD50pb again.

By reducing capacity airlines hope to restore a supply-demand balance that allows for fare increases to shore up passenger unit revenues, which have been on the decline for more than a year. Overall airline valuations show that investors remain anxious over negative PRASM, and are essentially ignoring the record profits and margins recorded by US airlines.

Delta has previously missed two separate time periods in which it aimed to return to a flat PRASM performance and has pledged to reach that goal by YE2016. As targets have slipped, most US airline executive management teams continue to stress the importance of positive PRASM and the weight it carries with investors.