American Airlines Group Inc Chief Executive Doug Parker is voicing his concerns over the risk associated with capacity growth among airlines. Parker says that growth could depress profits. Unlike past cycles, he says the current rise in capacity “feels different.”
When asked if there were concerns about growth exceeding demand, Parker said, “the real question is, is this a one-time catch up for fuel prices being lower or is this airlines behaving like airlines used to and just increasing capacity because times are good… I don’t know if we know the answer to that yet,” Parker said during a speech at the International Air Transport Association (IATA) global airlines conference in Miami.
With falling fuel costs, airlines over the last year have posted billion-dollar profits.
American recently said it would stand its ground as rival Southwest Airlines Co increases capacity in Dallas.
Many investors sold shares in both companies over fears that their capacity war would lead to discounted fares as competition in Dallas heats up. The two airlines feature major hubs at different airports in Dallas.
Parker admits that the atmosphere “feels different” because airlines and their investors have learned valuable lessons about capacity growth during several painful times in the airline industry.
On the other side of the coin, Air Canada Chief Executive Calin Rovinescu said he sees a minimal risk of a damaging rise in capacity. “The industry has learned the errors of the past,” he told Reuters. “We’re dealing with a more mature and experienced dynamic now.”
Rovinescu added: “People were undisciplined in the past, but they will be more disciplined this time. However, we will see rational growth where it makes sense to do it. You can’t have one-size fits all perspective on capacity.”
One common theme among airlines chiefs was their hope of expanding services further throughout Asia.