US airline shares dive on fears of slow growth, rising capacity

GMT 20:40 2015 Monday ,08 June

Arab Today, arab today US airline shares dive on fears of slow growth, rising capacity

US airlines
New York - AFP

US airline shares plunged Monday as worries about rising capacity and slow US economic growth trumped an upbeat forecast from an international aviation trade group.

In afternoon trade, American Airlines fell 4.2 percent, Delta Air Lines dropped 4.7 percent and United Continental lost 4.6 percent. The stocks had been down more than 5 percent earlier.

Other US carriers followed suit: Southwest, Alaska, JetBlue, Spirit, Hawaiian, Virgin America and Skywest stocks fell between 3 and 7 percent.

The declines came as industry officials converged on Miami for the annual International Air Transport Association conference.

The trade group raised its 2015 industry profit forecast to $29.3 billion from the previous $25 billion projection, with low fuel and higher passenger traffic offsetting the impact of the strong dollar.

However, airline investors appeared to respond to remarks from  American Airlines chief executive Doug Parker, who expressed fears that the industry is "behaving like airlines used to" and will again glut the market, Reuters reported.

An analyst at Raymond James added to the gloom, downgrading the three major carriers based on expectations that ticket prices will not rise as much as previously expected this summer.

The analysts cited softer-than-expected US economic growth, after the first quarter contraction, and American's "aggressive" response to moves by Southwest Airlines to boost capacity.

Last week Delta cut its second-quarter forecast for a key industry revenue benchmark, citing weaker-than-expected business travel.

United signaled similar headwinds due to weaker growth, executives told an investor conference last week.

"We are very much a function of GDP and so I would say we are seeing some of those similar trends," said chief revenues officer Jim Compton.

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