U.S. airlines tumbled after Southwest Airlines Co. cut its forecast for an industry revenue benchmark, citing stepped-up competition and a surprise drop in travel demand.
The weaker outlook is spurring investor fears that United Continental Holdings Inc.'s expansion plan will rekindle fare wars that have plagued the industry off and on since 2015. When the supply of seats outstrips demand, carriers generally have to cut ticket prices to fill planes -- a boon for travelers and a threat to airline profits.
Southwest's revision "screams United's strategy negatively impacting the business in the near-term," Helane Becker, an analyst at Cowen & Co., said Wednesday in a note to clients. "We suspected there would be pressure from United's strategy, but assumed it would come later in 2018."
Southwest dropped 6.1 percent to $56.99 at 10:28 a.m. in New York after sliding as much as 6.6 percent for the biggest intraday decline in more than seven months. A Standard & Poor's index of major U.S. airlines fell 3.8 percent, the most in six weeks and the biggest drop for any industry grouping on the S&P 500 Index.
Southwest's revenue for each seat flown a mile, a gauge of pricing power, will be unchanged from a year earlier. That's down from a previous projection of an increase of 1 percent to 2 percent at the airline, the largest U.S. discounter.
The carrier overlaps the most with United, including in major hubs such as Denver, Chicago and Houston, Becker said. United is planning a domestic expansion of as much as 6 percent a year through 2021.
In the first quarter, Southwest said, the pricing gauge known as revenue for each seat flown a mile has been below expectations during off-peak travel periods "primarily due to the competitive fare environment." Travel demand also has been lower than it expected due to spring break timing, the Dallas-based airline said.
-Mary Schlangenstein, Bloomberg
