U.S. Airlines in Longest Slump Since October on Revenue Weakness

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U.S. airline stocks fell for a sixth day, the longest slump since October, after American Airlines Group Inc. and Southwest Airlines Co. said a benchmark revenue gauge will fall more than forecast.

With Delta Air Lines Inc. unveiling a similar revision last week, Tuesday’s announcements reinforced investor concern that the U.S. market is weakening. Analysts including UBS AG’s Darryl Genovesi predict the biggest carriers will slow growth in domestic seating, strengthening their pricing power.

“This is less about demand and more about capacity growth in excess of demand that is causing unit revenue to decline,” American Chief Executive Officer Doug Parker said in an interview. “The U.S. economy feels strong still. GDP rates have not declined at all. Demand for air travel certainly seems strong.”

The Bloomberg U.S. Airlines Index of 11 carriers slid 0.7 percent, with American and United Continental Holdings Inc. the only carriers posting gains. They rallied before the close after JPMorgan Chase & Co. predicted that Southwest Airlines Co., the largest discounter, would succeed with a bid to boost fares.

“Increases appear to be $5 one-way, biased toward (but not exclusively) fare categories requiring a seven-day or less advance purchase,” JPMorgan’s Jamie Baker wrote in a note. “The industry has never met a Southwest fare increase it didn’t match, for as far back as our records go.”

50,000 Fares

Southwest’s move covered more than 50,000 published fares, about half its total, according to Baker.

Neither American nor Southwest is raising as much passenger revenue from each seat flown a mile as it once expected. So-called unit revenue probably will drop this quarter in a range of 6 percent to 8 percent, American said. It previously projected a decrease of 4 percent to 6 percent.

Southwest said Tuesday that unit revenue will decline by 4 percent to 5 percent this quarter, down from the 3 percent drop the airline projected at an industry conference last month. Southwest said it would cap expansion in 2016 seating capacity at 6 percent, a trim from the 6 percent to 7 percent at the same event.

American is reviewing winter seating-capacity plans and expects to disclose details when second-quarter financial results are reported next month, Chief Financial Officer Derek Kerr said on June 3.