Southwest Airlines continues to see capacity growth outpace revenue passenger mile (RPM) additions, underscoring the airline’s need to boost unit revenue through efforts such as its recent fare increases.

The Dallas-based carrier saw RPMs increase 4.9% last month compared to year-earlier figures, while available seat miles (ASMs) were up 6.5%. The carrier has not seen monthly traffic growth outpace capacity expansion since March. Year-to-date figures through November had RPMs up 3.3%, while ASMs increased 3.8%. 

Among US competitors that report regular traffic results, only Alaska Airlines, which is still integrating Virgin America, is on track to see full-year capacity growth outpace traffic gains. Alaska’s most recent figures show RPMs up 4.2% through October, while ASMs increased 5.1%. Its monthly RPMs grew faster than ASMs as recently as July. Dallas/Fort Worth-based American Airlines, Atlanta-based Delta Air Lines, New York-based JetBlue Airways and Chicago-based United Airlines are each on pace for full-year load-factor increases.

After a slow start to the year, caused in part by a temporary drop in bookings following April’s inflight engine failure and related passenger fatality, Southwest’s total passenger unit revenue (PRASM) rebounded last quarter, increasing 1.1%. Airline executives have expressed confidence in the overall revenue environment, and point to steadily increasing benefits from new revenue-management tools. Nevertheless, the carrier recently put in fare increases of up to $5 on most of its domestic routes—in part to help offset a projected 3% rise in nonfuel costs next year.

“The carrier is performing reasonably well on the revenue side despite traffic growth lagging capacity growth,” Delta Airport Consultants chief industry strategist William Swelbar said. “If Southwest is to expand margins in the face of rising costs, then, simply, revenue growth is paramount.”

While the carrier’s revenue is holding up, the extended run of monthly load-factor declines may be a sign of more fundamental challenges, Swelbar said.

“The US market is a more mature market, and the ability to stimulate new demand is more difficult as a result,” he said. “Southwest flies in the largest city-pair markets. In 2000, 76% of the top 2000 city-pair markets had nonstop service. Today, more than 92% of the top 2000 city pairs have nonstop service. Finding new opportunities is no longer low-hanging fruit.”

Meanwhile, Southwest’s fleet plan emphasizes efficiency at the cost of some capacity flexibility. Like most carriers, Southwest is adding seats to its aircraft, chasing more revenue for marginally higher unit costs. Carriers with mixed fleets can combine frequency and gauge, using regional jets if needed, to optimize service in a market. Southwest’s all-Boeing 737 fleet, while highly efficient because of its commonality, offers less flexibility. The gauge increase combined with the carrier’s preference for high frequencies makes lower-demand markets particularly challenging. 

At the end of 2012, the carrier’s 694-aircraft fleet averaged 136 seats per hull. By the end of 2017, the fleet numbed 706 and the average seat size was up to 152 per aircraft—a 12% increase. The airline plans to finish 2018 with about 750 aircraft, with the notable year-over-year jump coming as the carrier steadily adds 737 MAX family aircraft after accelerating retirement of its last 737 Classics last year.

“With average seat size growing and new markets to enter being fewer and smaller compared to Southwest’s historical standards, traffic lagging capacity growth should not come as a big surprise,” Swelbar said.

Sean Broderick,