By Tomi Kilgore, MarketWatch
Shares of airline companies traded mostly lower Thursday, as a more dire outlook on the groundings of Boeing Co.’s 737 Max planes sullied the earnings reports from Southwest Co. and American Airlines Group Inc.
And the biggest ever one-day plunge in discount carrier Spirit Airlines Inc.’s stock /zigman2/quotes/205782179/lastsale SAVE -10.42% after disappointing guidance was also a drag on the sector.
The NYSE Arca Airline Index /zigman2/quotes/210598447/delayed XX:XAL -8.34% pulled back 3.3% in afternoon trading, after closing Wednesday at the highest level since May 1, 2018. The index was underperforming the broader stock market by a wide margin, as the Dow Jones Transportation Average /zigman2/quotes/210598063/realtime DJT -4.30% shed 86 points, or 0.8%, and the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -4.06% gave up 152 points, or 0.6%.
The company said it would “proactively extend” the 737 Max-related schedule adjustments through Jan. 5, 2020, compared with its previous adjustments through Aug. 5, so customers can confidently book travel during the fall and holiday periods.
The company said the estimate is based on the expectation that the 737 Max planes will return to service during the fourth quarter, and that it will take “one to two months” to comply with prospective regulatory directives, including pilot training.
Investors seemed to appreciate Southwest’s proactive approach as the stock had dropped as much as 4.2% soon after the open, before bouncing sharply to be up 1.8% in afternoon trading.
Separately, Southwest said it would stop operating out of Newark Liberty International Airport in New Jersey, given that financial results there have been below expectations, and will consolidate its New York City operations at New York LaGuardia Airport, starting Nov. 3, 2019.
Meanwhile, American Airlines reported second-quarter profit, revenue and load factor that beat expectations and raised its full-year earnings outlook, but kept its 737 Max-related schedule adjustments through Nov. 2. Investors appeared weary, as the stock tumbled 7.8% in active trading.
American said it now expects 2019 earnings-per-share to be between $4.50 and $6.00, up from previous guidance of $4.00 to $6.00.
“Although the increase is encouraging, investors may question the guidance given the fluid nature of the Max situation (American has the aircraft out of its schedule through November 2 vs. Southwest’s decision to remove the aircraft from its schedule through January 5, 2020) and ongoing issues with their mechanics,” Analyst Helane Becker at Cowen wrote in a note to clients.
Spirit Airlines doesn’t fly any Boeing /zigman2/quotes/208579720/lastsale BA -10.27% aircraft, only the A320 family aircraft made by Airbus SE /zigman2/quotes/200706109/delayed EADSY -8.38% /zigman2/quotes/203006799/delayed XE:AIR -5.92% , but the stock plunged 23% toward a 9-month low, and was the biggest decliner on the New York Stock Exchange, after the carrier reported late Wednesday a second-quarter profit that beat expectations but provided downbeat guidance.
The stock was on track to suffer the biggest one-day percentage selloff since it went public in July 2014.
Analyst Jamie Baker at J.P. Morgan said Spirit’s third-quarter outlook for total revenue per available seat mile (TRASM) and costs implied an EPS outcome in the $1.50 range, which is “uncomfortably below” his $1.89 forecast.
“While the TRASM guide may prove somewhat conservative, Spirit’s ability to control its cost structure--at least in the near term--has been called into question, in our view,” Baker wrote in a research note. “A potentially challenging day(s) rests ahead for Spirit, in our view, given the size of its guidance miss.”
Elsewhere, shares of United Airlines Holdings Inc. /zigman2/quotes/205037281/lastsale UAL -7.62% shed 0.9%, Delta Air Lines Inc /zigman2/quotes/200327741/lastsale DAL -6.78% fell 1.4%, JetBlue Airways Corp. /zigman2/quotes/207639051/lastsale JBLU -10.80% inched lower by less than 0.1% and Alaska Air Group Inc. /zigman2/quotes/200972303/lastsale ALK -8.06% gave up 3.0%.
The airline sector index has gained 17.1% so far this year, while the Dow transports has advanced 16.7% and the Dow industrials has gained 16.3%.