All major airline stocks took a beating on Thursday, with American Airlines (AAL) being the worst hit. The stock tumbled over 8% during intra-day trading after cutting its profit estimate for the fiscal year 2018.
The company lowered its profit estimate for the full year to $4.40- $4.60 per share, from the earlier projected range of $4.50-$5 per share.
Revenue per available seat mile, an important metric in the airline industry, rose 1.5% year-over-year. This represents the lower end of the earlier projected range of 1.5% to 3.5%.
AAL shares have plunged 41% in the trailing 52 weeks. This puts a lot of pressure on CEO Doug Parker ahead of the fourth quarter results, scheduled to be published on January 24.
Reverberations of the estimate slash was felt throughout the industry on Thursday, with United Airlines (UAL) falling 4%, Delta Air Lines (DAL) edging down 0.3% and Southwest (LUV) declining over 1%.
Airline stocks have largely lagged benchmarks last year due to an increase in fuel prices. However, with a decline in fuel price towards the end of the year, investors were hoping that carriers would effectively use this to their advantage in a seasonally strong holiday quarter.
The initial signs were positive. Traffic during the Thanksgiving weekend peaked, bucking fears of prolonged slowness in the airline sector. Delta Air Lines (DAL), meanwhile, said a record number of passengers – 2.3 million – used its services from November 21 to November 25.
Separately, Alaska Air Group (AAL) raised its RASM guidance for the fourth quarter to 12.60 – 12.80 cents from the earlier projection of 12.40-12.60 cents.
However, as it turns out, some airline companies apparently gave out higher discounts to beat rivals than they should have.
Delta Air Lines and United Airlines are both scheduled to report earnings on Tuesday, January 15.