American Air Says Capacity Gains Are Due to Added 737 Seats
NEW YORK (TheStreet) -- American Airlines' (AAL) - Get Report capacity increase numbers for 2015 are misleading because they include a one-time event: adding seats to 221 Boeing 737-800s, President Scott Kirby said Tuesday.
The event put downward pressure on passenger revenue per available seat mile (PRASM), he said.
"In November and December we did 221 aircraft, put 10 more seats on them," said Kirby, speaking at a JP Morgan investor conference. "We created all those ASMs we didn't sell. I think we will close that gap as we move forward."
Added available seat miles pressures PRASM, a common airline industry metric, because the seats must be sold at prevailing levels to maintain PRASM.
Kirby said Delta (DAL) - Get Report , Southwest (LUV) - Get Report and United (UAL) - Get Report are also putting more seats on aircraft this tear. "2015 has a one-time effect," he said. "2016 will look a lot different."
For the full year 2015, American projects total system capacity will rise 2% to 3%, "primarily due to larger average gauge aircraft and higher assumed completing factor," according to an 8-K filed Jan. 27.
"Full year domestic capacity is expected to be up approximately 3% year-over-year, while international capacity is expected to be up approximately 1.5% vs. 2014," the filing said.
Like American, Delta, United and Southwest have been installing skinnier seats on airplanes. United, for example, has installed new Recaro seats on 152 Airbus aircraft and a similar seat on several dozen 737s. In each case, the aircraft got an additional row of six seats.
Wall Street analysts continue to worry that increasing capacity will pressure PRASM. In a note on Delta issued Tuesday, Cowen & Co. analyst Helane Becker wrote, "We continued to be concerned about second quarter PRASM expectations as we believe it will be difficult for the company to increase price as capacity grows and fuel costs remain below year ago levels.
"The growth in the U.S. domestic market continues to be concerning," Becker wrote. "We believe the industry should adopt a more modest growth rate." Delta has projected 2% growth for 2015, while United has maintained it wants capacity to grow at a rate lower than U.S. GDP gains.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.