Capacity growth to hinder US airlines' profits, supports lease rates

Strong capacity growth in the US is likely to impact US airlines' fares and profits in the year ahead, according to Bloomberg Intelligence reports. Aircraft utilisation is around 94-95% of 2019 levels as capacity continues to grow along with strong traffic figures, which in turn has supported aircraft lease rates and market values for all categories. In addition, the continued supply chain issues have further bolstered lease rates. ""US airlines' domestic schedules are set for robust increases in 2Q-3Q, which may pressure fares, hurting profit,"" the report said. ""The full-service carriers will add the most, seemingly dispelling fears of an airplane shortage, with most over 6% more seats or available seat miles versus the year prior"". The report found US capacity is growing at over twice the rate of GDP on key routes, including domestic and short- to medium-haul to Latin America. Long haul travel to Europe is expected to increase by around 9% year-on-year (YoY) in the second quarter of the year as summer demand heightens. Though, European carriers are leading over the US in terms of capacity gains. The widebody market from long haul travel has seen a slower recovery in comparison to other markets and Bloomberg Intelligence has seen lease rates and value gains trimmed on widebody aircraft. Bloomberg analysts said: ""Lease rates and market values for widebodies still have room to grow since use is on the rise, yet still below 2019. Aircraft less than 8 years of age are favoured by airlines, with average use 2% lower versus 2019 at 11.7 hours, followed by aircraft between eight and 15 years down 4% at 9.6 hours."" Narrowbody capacity to Latin and South America from the US is set to rise 30-40% over 2019 between the second and third quarter of the year. Non-US carriers are supplying the most capacity, with the largest being Volaris. While this will put added pressure on fares, lessors with LEAP narrowbody engine fleets will benefit from the capacity growth. Analysts said those with a large orderbook A320neo and 737 MAX narrowbody aircraft will ""benefit the most on planes placed at better rates"" as narrowbody usage rises.