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US airlines making progress on capacity despite LCCs: Herbst


Despite numerous headlines and press releases from various US airlines, no new significant growth is being added to airline capacity, according to founder Bob Herbst. But his report was made more interesting for the fact that, although most think low-cost carriers' capacity growth has impeded legacy ability to raise fares, the US airline industry capacity retractions in the past decade have actually overwhelmed the growth of the low-cost carriers in that time. In addition, contrary to popular belief that legacies have just been offloading their capacity onto regionals, they have not increased regional flying and, in fact, have kept it flat over the past three years.

“Passenger demand reconciled with little to no increase in capacity will continue to provide record load factors for at least the third quarter of 2010,” Herbst concluded. “Further, this historically high traffic demand, combined with lower fuel costs than previously projected, will lead to significant profits for most of the airline industry. Legacies today are moving the chairs around the deck, not adding new ones. In other words, most airlines are transferring aircraft and resources from one route to another as opposed to adding capacity.”

The declaration by Herbst comes as a relief as the flurry of releases seemed to indicate airlines were already compromising their pledges for capacity discipline. Herbst evaluated route plans from the nine largest carriers including Delta (DAL), American (AMR), United (UAUA), Continental (CAL), US Airways (LCC), Southwest (LUV), JetBlue (JBLU), Alaska (ALK), and Air Tran (AAI). Except where noted, data represents mainline operations.

Mainline operations: 1st half 2010 compared with 2009

Contrary to popular belief, available seat mile capacity (ASM's) shows Alaska, Air Tran, and JetBlue as the only major airlines actually adding capacity compared with last year. Collectively, the nine airlines covered in this analysis flew 5.8 billion fewer ASM's in the first half of 2010 than they flew in the same period a year ago.

United had the largest year-over-year capacity decline at -3.8% followed closely by Southwest at -3.3%. JetBlue had the largest increase at 5.8%.

Full-year 2010 capacity projections compared with 2009

Based on each airline's investor updates, Air Tran, Alaska and JetBlue will once again lead the industry in 2010 capacity growth compared with 2009. Only Southwest and United are projected not to add any capacity for 2010.

Regional affiliates: year-on-year change 2007 to 2010

Legacy mainline airlines have kept regional capacity flat, said Herbst. “United is the only airline to have continuous increases in their regional affiliate capacity,” he said. “Regional affiliate capacity for Delta, American, Continental, US Airways, and Alaska has been flat to declining over the last three years. As a ratio of total consolidated capacity for 2010, US Airways is projected to have the highest regional impact closely followed by United and Delta. American has by far the least amount of regional capacity compared with other legacy competitors.

A lost decade

The last major profitable growth period for the airline industry ended nearly 10 years ago, Herbst noted. Year 2000 was the last full year after approximately five years of record profits and growth for the industry.

“Even after accounting for the 45% capacity increase from Alaska, 73% increase from Southwest, 345% increase from Air Tran, and the 8.7 billion ASM increase from upstart JetBlue, these nine airlines plus their merged partners, cumulatively operated 6.4% fewer ASM's than they did in the same time period 10 years ago,” he said.

Load factor: 2nd quarter 2010 compared with 2000

One of the most significant industry changes over the past decade is the increase in every airlines' load factor.

Specifically for the second quarter, Southwest's 6.7% change in load factor was the industry's smallest increase compared with 10 years ago. All other airlines increased load factors from 10.3% to 14.6%.  

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