State of the Airlines

Thursday, September 28, 2006

AirTran Delays Aircraft Delivery (But Look at the Capacity Plans)

AirTran's announcement yesterday that they would delay delivery of 8 Boeing 737-700s has a Jekyll and Hyde quality about it. Delaying delivery on aircraft in the face of what they see as softening demand this year makes sense. Dr. Jekyll is making perfect sense. Mr. Hyde lurks further down in the outlook AirTran has for growth in 2007.
After the delays, AirTran expects to take delivery of 14 planes in 2007 and 15 planes in 2008. This represents expected capacity growth of 19 percent to 20 percent in 2007, and 9 percent to 11 percent in 2008, the company said.

This growth is far more agressive than the 5-7% growth the Continental Airlines is predicting over the coming years. I know I keep banging this drum but widespread aggressive growth, i.e. increases in capacity, in 2007 could endanger to the recovery of the airlines industry. I will have to watch for more airlines to make forward looking statements on their plans for 2007. Airlines need to carefully measure their capacity against demand or Mr. Hyde will run amok.

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