U.S. Carriers Keep Lid On Growth - Business Travel News

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U.S. Carriers Keep Lid On Growth

January 28, 2013 - 09:40 AM ET

By Jay Boehmer

U.S. carriers this year expect to add only minimal supply to the domestic market, positioning them to maintain a degree of pricing power.

As measured by available seat miles, domestic capacity this year will grow about 2 percent year over year, according to a Morgan Stanley forecast. Updated last week and based on carrier data, OAG schedule information and analyst estimates, the forecasts calls for no change in international capacity.

That 2 percent domestic growth estimate is in line with 2013 U.S. gross domestic product projections, according to Dahlman Rose & Co. analyst Helane Becker, "and as a result should be met with higher demand."

Analysts keep close watch on the correlation between GDP and airline capacity to determine if supply, demand and pricing remain in balance. So far, they're not seeing anything that would suggest falling airfares.

Buckingham Research Group's Dan McKenzie this month wrote that "the overall capacity backdrop remains conducive to improved pricing power in 2013."

Though carriers and analysts expect modest full-year capacity growth, several major airlines this week said they expect first-quarter declines.

Southwest Airlines CEO Gary Kelly last week told analysts and media that he sees a "pretty benign industry capacity forecast" and expects first quarter domestic capacity to drop "in the 1 percent to 2 percent range."

Southwest is expecting its own first-quarter capacity to be flat year over year, with full-year capacity up 2 percent from 2012.

United Airlines indicated that its systemwide first-quarter capacity could be down by as much as 5 percent year over year. "We have operated in an environment of slow global economic growth for the last few years and based on the latest GDP information the 2013 outlook is similar," said United vice chairman and chief revenue officer Jim Compton.

Delta, meanwhile, expects systemwide capacity this quarter to be down between 2 percent and 4 percent against the year-earlier period.

There are some bastions of growth. Alaska Airlines expects capacity this quarter to grow 8.5 percent year over year and 7.5 percent of the full year. JetBlue and Spirit also are poised for year-over-year growth, according to analysts.

US Airways, meanwhile, expects full-year capacity to be up about 3 percent year over year, which president Scott Kirby said "has been driven primarily by larger gauge aircraft."

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