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Profitable airlines face grumpy investors

Tim Fitzsimons Jun 12, 2015
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Profitable airlines face grumpy investors

Tim Fitzsimons Jun 12, 2015
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U.S. airlines are having a great year, but the major carriers’ stock prices have tumbled this week, thanks to growing fears that airlines will overreact to the the good times and mess things up for investors. 

The planes are fuller so they’re flying with fewer empty seats. And fuel prices are extremely low.

Joe Schwieterman, a transportation professor at DePaul University in Chicago, says demand has been strong and ticket prices low, “so the fares out there are actually pretty attractive. And we really thought this was going to be a summer where airlines could, in effect, rake it in.”

And investors don’t like it when airlines cut prices if it isn’t clear that will result in greater market share. In fact, in the past it’s given airlines quite the stomach ache when their expansion gets whacked by a spike in fuel prices or a reduction in consumer demand.

Seth Kaplan, managing partner of Airline Weekly, says “investors are worried that airlines are just going to put too much supply in the marketplace and grow more quickly than the economy.”

“When we look at the schedules for the next bunch of months and into early 2016, airlines are indeed looking to grow more rapidly than the economy,” Kaplan says. He adds that growing too fast can result in reduced profits and grumpy investors.

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