Airlines hit headwinds from investors as they try to capture growth

Mon Jun 8, 2015 3:47pm EDT
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By Jeffrey Dastin and Victoria Bryan

(Reuters) - Major U.S. airlines' shares tumbled on Monday amid fears that the carriers are grabbing for market share at the expense of profits.

Shares in Delta Air Lines Inc (DAL.N: Quote) , Southwest Airlines Co (LUV.N: Quote), United Continental Holdings Inc (UAL.N: Quote) and American Airlines Group Inc (AAL.O: Quote) all fell sharply despite a bullish outlook on industry profitability issued Monday by the International Air Transport Association (IATA) at its general meeting in Miami.

Global airlines should earn $29.3 billion this year, nearly double last year’s level, and average net profit margins should nearly double to 4 percent from 2.2 percent, the industry group forecast. [ID: nL5N0YU265]

Wall Street, however, focused on concerns that big U.S. airlines are casting aside years of disciplined efforts to limit capacity and boost profit margins for each mile a passenger flies.

In a series of moves over the past few weeks, Delta, Southwest, American and other carriers have announced plans to add more planes or put more seats on existing aircraft on certain routes.

Raymond James on Monday cut its ratings for Delta and United Continental to “outperform” from “strong buy,” and for American to "market perform" from "outperform."

Raymond James analyst Savanthi Syth said in a research note that while he expected the industry to maintain capacity discipline, the industry's recovery "is likely to be somewhat muted vs. previous expectations due to the softer than expected U.S. economic growth."

Delta shares were down 4.6 percent, while American fell 4.2 percent, with Southwest losing 2.5 percent and United slumping 4.9 percent.   Continued...

Flight personnel stand inside the airport in Puebla May 10, 2012. REUTERS/Imelda Medina