Airline Stocks Sink After American Sees Fare Pressure Into 2016

American Airlines Group Inc. paced an industrywide stock slide after predicting that a closely watched revenue gauge would keep declining into 2016, signaling that ticket prices remain under pressure.

Forecasts for passenger revenue from each seat flown a mile have gained increasing importance among some analysts and investors as a clue to future demand and profit. The earliest “reasonable expectation” for positive unit revenue won’t occur until the second half of next year, President Scott Kirby said Friday on a conference call.

Wall Street looked past the latest financial results from the world’s largest airline: a record second-quarter earnings and a doubling of the buyback program, to $4 billion. American renewed a vow to keep fighting discounters on price, which raised the prospect of continued weakness in fares.

“Maybe that was perceived negatively, as kind of backing off the industry’s aggressive pricing,” said Savanthi Syth, an analyst at Raymond James Financial Inc. But American “is showing no signs of backing off.”

American tumbled 7 percent, the most in two months, to $39.63 at the close in New York. The Bloomberg U.S. Airlines Index slid 3.1 percent and declined for the week, snapping a streak of three such advances. Ten of 11 carriers in the gauge fell.

Seat Growth

Industry seating capacity that continues to grow faster than demand is helping damp unit revenue in the U.S. market, Kirby said, with no improvement visible. Fort Worth, Texas-based American reiterated that it’s increasingly matching prices from Southwest Airlines Co. and other low-fare carriers to retain passengers.

“What’s nice to see is revenues haven’t fallen nearly as much as costs and, as a result, profits are growing,” Chief Executive Officer Doug Parker said on the conference call. “That’s a positive thing, not a negative.”

Excluding some items, quarterly profit was $1.9 billion, or $2.62 a share. That topped the $2.60 average of 16 analysts’ estimates compiled by Bloomberg. Sales slipped 4.6 percent to $10.8 billion.

American said unit revenue would fall 6 percent to 8 percent this quarter, after dropping 6.9 percent in the first three months of the year.

The buyback program expands on a plan announced just six months ago. Boosting the repurchase authority signals the carrier “is really happy with where we are and really bullish on the future,” Parker said.

The airline joined United Continental Holdings Inc., Delta Air Lines Inc. and Southwest in starting or increasing buybacks this year, with combined repurchase authority of $13.5 billion.

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