Airline Shares Tumble on Weaker Revenue, Higher Fuel Costs

  • Industry’s stocks are among the worst in the S&P 500 index
  • Orlando attack isn’t expected to have impact, analysts say

U.S. airlines were among the worst-performing stocks Monday as revenue looked weaker than analysts expected and fuel continued to rise.

Five airlines were among the 10 stocks with the sharpest drops in the Standard & Poor’s 500 index, with United Continental Holdings Inc. decreasing the most among carriers with a 4.2 percent decline. The Bloomberg U.S. Airlines Index fell 3.4 percent at 1:25 p.m. in New York, with every one of its 11 members down for the day.

Airline revenue looks worse than originally expected, at least two analysts said on Monday. That and a 30 percent rise in jet fuel prices this year led some analysts to lower their profit forecasts for 2016. While Sunday’s mass shooting at an Orlando nightclub probably will cause some customers to stay away from Florida this summer, the attack should come to a “rounding error” for airline profits, Buckingham Research Group analyst Dan McKenzie said in a note.

“That said, the airline industry is not well-situated to withstand near-term demand shocks given over-capacity this summer,” McKenzie said.

The Orlando shooting compounded issues already affecting U.S. airlines. Unit revenue, a key measurement of passenger revenue for every seat flown a mile, has fallen for more than a year, and analysts Monday estimated the figure won’t rise for some airlines until next year. Heavy competition, capacity that has outstripped demand in some markets and weakness in energy-rich markets have led to the industry troubles.

Even Delta, which looks closest to increasing unit revenue, last week said its second-quarter unit revenue would be on the lower end of its previous estimate for a decline of 2.5 percent to 4.5 percent.

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