Airline stocks tumble after American trims revenue outlook

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Shares of American Airlines tumbled more than 7 percent Wednesday after the world’s largest carrier trimmed its outlook for second-quarter revenue growth.

Revenue for each seat it flies a mile, a key revenue metric, likely grew 1 percent to 3 percent in the three months ended in June, down from a previous forecast of 1.5 percent to 3.5 percent growth, due to weakness in the domestic market, American said in a filing.

Other airline stocks fell along with American as investors have fretted about how carriers will cope with a surge in fuel costs.

In afternoon trade, United‘s stock was down close to 4 percent and Delta, which reports second-quarter earnings before the market opens on Thursday, fell more than 2 percent. Southwest was off more than 1 percent, while Alaska fell nearly 4 percent.

Analysts expect carriers to start trimming the number of seats they offer starting after the busy summer travel season. When airlines reduce the supply of seats in the market, they could more easily raise fares, which have languished while fuel prices soared. Fuel prices rose about 12 percent in the first half of the year, according to S&P Global Platts.

“Increasing costs and competitive pressures have stifled American’s earnings potential in 2018,” Cowen airline analyst Helane Becker wrote in a note after American lowered its outlook on Wednesday.

“American continues to see solid demand, but this strong demand appears to be coming as a result of lower fares,” wrote Becker, adding that American will likely cut its plans for capacity growth in the last quarter of the year and probably next year as well.

American’s shares are down about 30 percent this year. On Wednesday afternoon, they were on track for their lowest closing price since September 2016.

American also said it expected that a technical problem at its regional partner PSA Airlines last month, which resulted in the cancellation of about 3,000 flights, likely cost American $35 million.

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