The overall demand for air travel was robust with strong growth in the Latin American markets, and moderate growth in the domestic U.S. and Atlantic international air travel markets.
Last quarter, airline results were a mixed bag due to the negative impact from severe weather that disrupted normal flight operations in the northeast and mid-continental U.S.
This growth oriented capacity stance of major airlines is a reflection of the improved health of the U.S. airline industry.
Over the last week, major U.S. airlines reported their traffic results for the month of May. Barring a few, most airlines expanded their flying capacities to take advantage of the growing demand for air travel in the domestic U.S. market and on international routes connecting Latin America, Asia-Pacific and Europe. Higher flying capacities in turn raised passenger traffic for these carriers which will likely help grow their second quarter results. In our opinion, this growth oriented capacity stance of major airlines is a reflection of the improved health of the U.S. airline industry. Here we discuss the May passenger traffic reports for the six U.S. airlines under our coverage with a focus on demand environment across markets.
In May, the overall demand for air travel was robust with strong growth in the Latin American markets, and moderate growth in the domestic U.S. and Atlantic international air travel markets. Airlines such as American (NASDAQ:AAL), Delta (NYSE:DAL) and United (NYSE:UAL) that have significant presence in the Latin international markets, grew their overall passenger traffic due to considerable expansion in these markets. In comparison, Southwest (NYSE:LUV), which has less international exposure, had to cope with the moderate growth environment in the domestic market.
American, which became the largest airline last December after its merger with US Airways, raised its flying capacity by around 2% annually in May. This raised its passenger traffic also by around 2% annually. Coupled with higher year-over-year unit revenues (amount collected from each passenger for a seat per mile of flight), we figure the carrier's passenger revenues would have increased significantly in May, on a year-over-year basis. It is interesting to note here that unlike previous mega airline mergers of Delta-Northwest and United-Continental, the new American is expanding its flying capacity soon after its combination with US Airways. In Delta-Northwest and United-Continental's case, the combined airline slashed its flying capacity for several months after merger before returning to a growth oriented capacity stance. We figure American in contrast is expanding its capacity soon after the merger driven by the current solid demand for air travel.
United, the second largest U.S. airline, expanded its flying capacity marginally in May, after contracting it in April and the first quarter. This marginally higher flying capacity raised the carrier's May passenger traffic by 1% on a year-over-year basis. This is a welcome sign as United's first quarter results were disappointing. If the carrier sustains this growth in its passenger traffic in June, then we figure its second quarter results will likely be better than its first quarter loss of $609 million.
Delta, the smallest of the three large network carriers, continued its impressive performance in May. The carrier expanded its flying capacity by nearly 4% annually, which pushed up its passenger traffic by around 6% annually. This impressive growth in the carrier's passenger traffic was driven by 23% year-over-year growth in its passenger traffic on Latin international routes followed by around 7% growth in its domestic passenger traffic. In comparison, Southwest did not benefit as much from the strong growth in the Latin international air travel market as it focuses on the domestic U.S. market. The carrier's flying capacity contracted marginally in May, but its passenger traffic rose on support from the steady domestic demand environment. In the coming years, we figure as Southwest builds its international network, particularly in Latin international markets, it will gain from the faster growth of these markets.
JetBlue (NASDAQ:JBLU) and Alaska (NYSE:ALK), which are much smaller than the three big network carriers and Southwest, expanded their flying capacities and passenger traffic by around 5-7% annually in May. We believe their relatively faster growth was in part enabled by their smaller size and a desire to capture greater market share.
All in all, May traffic results of these six U.S. airlines were good. And, we figure if this trend continues through June, these airlines will post better results in the second quarter, compared with the first. Last quarter, airline results were a mixed bag due to the negative impact from severe weather that disrupted normal flight operations in the northeast and mid-continental U.S. As a result, airlines such as United and JetBlue that have a much greater concentration of their flights in that region posted lower earnings. In the second quarter, if the May traffic results are any indicator, then results will likely be more across airlines driven by the solid demand for air travel, especially on Latin international and domestic routes.
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