By Conor Shine
The Dallas Morning News
American Airlines’ stock price tumbled Thursday after it warned investors about weaker-than-expected domestic fares over the last three months of 2018.
The announcement suggests American and other major carriers are struggling to raise ticket prices as they do battle with each other and fast-growing ultra-low-cost carriers in a competitive environment.
While that generally meant cheaper fares for consumers, it left airlines struggling to increase revenues to offset rising costs to the dismay of investors.
Shares of American were down as much as 8.1 percent to $30.71 in the early hours of trading Thursday and closed down 4 percent at $32.04. Stock prices across the airline industry also slid following American’s news.
The updated guidance came a week after Delta offered a similarly muted update that revealed slower revenue growth than expected.
“I think it’s another data point that the airlines have little to no pricing power,” Bloomberg Intelligence senior airlines analyst George Ferguson said of American’s update. “As the battle continues to rage for economy fares, what’s happening is low-cost guys are adding a lot of capacity to the marketplace. That’s making it difficult to fill the back of the airplanes without doing some decent discounting.”
In the Thursday update, American said its unit revenue, a closely watched metric of the amount earned per seat flown a mile, would be up about 1.5 percent in the fourth quarter. That’s on the low end of the forecast American previously provided to investors, which projected an increase of as much as 3.5 percent.
American also said it expected its earnings per share for 2018 to be $4.40 to $4.60, down from a previous forecast of $4.50 to $5 per share.
Heading into 2019, American and other airlines will be able to save on lower fuel prices, which have dropped to levels below what was seen most of last year. But that could tempt airlines to continue growing their networks faster than the growth of the overall economy, a recipe for continued low fares.
“At lower fuel prices fares don’t have to be as high. There’s potentially more demand for travelling public,” Ferguson said. “We think it’s going to be a challenging year because it’s set up again for there to be plenty of capacity, it’s going to be hard for (airlines) to command the prices they need to grow margins.”
American is set to report its fourth-quarter and full-year financial results Jan. 24.