Analysts pan Southwest Airlines' plan to speed up expansion; airline stocks fall

IndustrialsAssociated Press

Southwest Airlines Co. is speeding up its planned growth, which worries analysts, and American Airlines says profit margins will probably fall next year.

The stocks of several leading airlines fell in afternoon trading on Tuesday.

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Southwest said it plans to increase flying this year by between 7 and 8 percent compared with last year, up slightly from its previous plan. Its chief financial officer, Tammy Romo, said it was mostly due to new flights in Dallas.

Stifel analyst Joseph DeNardi called the news "frustrating" because investors want airlines to control passenger-carrying capacity. Cowen and Co. analyst Helane Becker said there is "growing concern" about the effect that Southwest's growth will have on the rest of the industry — analysts worry that more flights will lead to lower fares and airline revenue.

Cheaper oil has reduced one of airlines' biggest expenses and makes it easier to grow. Scott Kirby, the president of American Airlines Group Inc., said airlines are operating more flights than they would if oil were still $100 a barrel.

Kirby said 2016 margins will be thinner than in 2015 but still better than 2014. Kirby and Romo spoke at a Wolfe Research conference in New York.

In afternoon trading, Southwest shares were down $1.08, or 2.6 percent, to $41.06; American was down 98 cents, or 2 percent, to $48.02; Delta Air Lines Inc. was off $1.05, or 2.2 percent, to $46.32; and United Continental Holdings Inc. was down $1.22, or 2 percent, to $61.03.