United and rival airlines are getting battered as analyst criticizes the industry’s capacity growth
Shares of United Airlines fell as much as 9.3% in Thursday afternoon trading amid the company’s third-quarter earnings call.
Traders exchanged about 16 million shares of UAL as of 1:10 p.m. ET, nearly 3x the full-day average volume over the past 30 days. Potentially spooking investors were comments from Bloomberg Intelligence analyst George Ferguson, who, speaking with Yahoo, criticized United’s capacity growth considering a relatively slower economy.
An airline’s capacity is measured by the number of seats on flights that are available for purchase. Increasing capacity involves more flights, which increases costs. That can be worth it if more capacity leads to a higher number of seats purchased.
But Ferguson questioned whether United’s 7% increase in capacity in the third quarter was warranted giving that overall US economic growth is somewhere around half that level.
“It looks to us like the market is saturated. Definitely at the basic economy level it looks like there’s just far too much capacity and fares are pretty soft there. Some of the premium is probably softening as well,” said Ferguson, who also said Delta’s capacity growth seemed a bit high.
The continuing government shutdown may also be playing a role in airline stock performance. Along with United, JetBlue, American Airlines, Frontier Airlines, and other rivals were also trading lower.
