North American Airlines Case Analysis

Supply Drivers:
In order to support the forecasted 3% industry growth, the industry must grow its capacity accordingly. North American airlines are expected to raise capacity at an annual rate of 3.1%, slightly above the industry growth rate.

Available Seat Miles
As shown in Figure 8, ASM growth has dramatically increased from 2013-2015 due to incumbents LUV and DAL. In order to determine a capture of growth we regressed ASM with the corresponding load factor. In doing so, we found that LUV captures the most ASM growth (84% RSQ with load factor, Figure 9), whereas peers DAL, UAL, and AAL trailed with growth captures of 78%, 75%, and 36%. (Appendix 12). Southwest’s large ASM growth is a result of the expiration of the Wright Amendment in

For the better part of the post 1978 industry history, the airlines have yet to earn their cost of capital. Capacity discipline and an unprecedented drop in fuel prices have fostered the industry’s healthiest phase ever. With the additional free cash flow being generated, airlines are making large investments in incremental improvements to their products and airframes.

In the short term we will see capacity continue to be added on select routes particularly by ultra-low cost carriers (ULCCs). However, airline leaders have noted their intention to avoid recreating the industry’s history of market share battles. The top trend in 2016 is forecasted to be downward pressure on air fares as a result of added capacity and lower fuel costs.

With the proliferation of air fare transparency and the aggressive growth of ULCCs serving as a catalyst of change, the industry is evolving to attract the next generation of younger, more cost-conscience consumers by adding an unbundled (or restricted) fare class. This new fare is considerably lower yielding than other fare classes, so airlines are responding by adding extremely high yielding ancillary revenue products/services at numerous points within the air travel experience. Looking forward, ancillary revenues will become a larger part of total