US Airlines Stocks Drop as Delta Cuts Margin Forecast

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 US Airlines Stocks Drop as Delta Cuts Margin Forecast

On Wednesday, stocks for US airlines dropped after Delta Air Lines cut its forecast for the operating margin and reported a drop in international passenger traffic in August. This has heightened concerns that other carriers in the US might experience the same lag.

Delta’s performance in August was relatively strong but its shares dropped 5.2% to $38.79 during Midday trading on Wednesday on New York Stock Exchange. Shares for American Airlines Group Inc dropped 3.3 percent to $39.16 on NASDAQ. United Continental Holdings stock dropped approximately 2.3% to $48.83.

Bloomberg reported that Delta’s strong operating performance in August was 99.6 percent for the monthly completion factor and 84.3% rate for on-time arrival.

According to Reuters Michael Derchin, CRT Group analyst said, “It’s still a very strong performance. The market tends to overreact.”

On Wednesday, Delta said that it expected 15% to 16% in operating margins in the third quarter, which is down from the 15% to 17% it stated in July.

Analysts said this change is likely to have stemmed from the reduction of the forecast for passenger unit revenue by Delta to 2% – 3% growth from 2% – 4% growth earlier.

The airline said that only 88.7% of its seats were filled in August on transatlantic flights in comparison to last year’s 91.5%. However, the US load factor for the airline rose from last year’s 85.3% to 87.2%.

Other carriers in the US are yet to announce their August traffic and the concern about the empty seats on flights to Latin America and across the Atlantic could be putting pressure on performance, according to Joseph DeNardi, analyst at Stifel Nicolaus. He added. “There is excess capacity in the international market.”

Derchin said that some investors are apprehensive about the Ebola virus’ impact and the tension in the Middle East on air travel.

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To contact the reporter of this story; Yashu Gola at yashu@forexminute.com