Tuesday, October 16, 2018

From the Wire - Business

Investors worry airline growth will cut profits

Planes are full and airlines are making huge profits, but airline stocks are falling for a second straight

DALLAS — Planes are full and airlines are making huge profits, but airline stocks were falling for a second straight day because investors fear that the airlines are growing too rapidly.

They worry that airlines are adding so many flights and seats that they will spark fare wars that cut into profits.

This week’s downturn in the shares, however, is overshadowing strong demand for travel that is making the airlines so profitable.

American Airlines Group Inc. predicted Thursday that higher revenue will produce 2018 profit far exceeding Wall Street expectations.

But shares of American and other airlines fell again Thursday, as investors continued to focus on fear of overly rapid growth and fare wars.

The rout started when United Airlines disclosed that it expects to increase flying by 4 percent to 6 percent each of the next three years, about twice as fast as its rivals.

The stock-market value of the largest six U.S. airlines dropped by $9 billion Wednesday. By Thursday afternoon, that value drop had ballooned to nearly $13 billion.

American Chairman and CEO Doug Parker tried to defend his company’s plan to boost its passenger-carrying capacity by 2.5 percent to 3 percent.

“We think it is smart, efficient growth where we have competitive advantage” and “doesn’t result in fare wars,” he said on a call with analysts.

United President Scott Kirby had offered a similar explanation the day before.

Jim Corridore, an analyst with CFRA Research, said United’s capacity plans had upset investors, but “we think fundamentals remain strong.”

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