Southwest (LUV) missed second-quarter expectations and forecast its first unit-revenue decline for the year, while warnings from European carriers on the effects of recent terror attacks weighed on Delta Air Lines (DAL), United Airlines (UAL) and American Airlines (AAL).
Southwest's Q2 earnings per share rose 15.5% to 1.19, missing estimates by 2 cents. Revenue rose 5% to $5.38 billion, shy of views for $5.405 billion. Traffic growth of 6% outpaced capacity growth of 4.8%, leading to a unit revenue gain of 0.6%.
But the discount carrier expects Q3 unit revenue, which measures revenue as it relates to an airline's carrying capacity, to fall 3%-4%. That's worse than consensus for a 1.3% drop, according to a research note from Cowen.
"While solid traffic demand has continued into July, thus far, the fare environment remains challenging, and close-in yields have softened in recent weeks," CEO Gary Kelly said in a statement, referring to an airline's ability to charge more for tickets booked closer to a flight's departure.
Shares plunged 11.2% on the stock market today, diving below their 50-day average. A computer glitch Wednesday also forced Southwest to cancel flights, but it has since been fixed. United lost 3.4%, Delta dropped 4.2%, and American retreated by 2.7%. European carriers Lufthansa and easyJet said Thursday that terror attacks in the region and international upheaval were likely to discourage travel.
IBD'S TAKE: Southwest and other domestic-focused carriers have been more insulated from the international troubles faced by its bigger network rivals. But low fares continue to affect fundamentals. See how Southwest and rivals stack up at IBD Stock Checkup.
Southwest also said it expected unit costs to rise around 2% for Q3 and roughly 1% for the full year.
Southwest began offering more flights after federal limits on its Love Field hub in Dallas expired in 2014. But as oil prices crashed that year, the big three network carriers and low-cost carriers like Spirit Airlines (SAVE) also stepped up flight coverage, creating a competitive, lower-fare landscape that weighed on unit revenue.
On Tuesday, Spirit warned on its Q2 unit revenue, citing "more fare discounting than what is typical for a peak summer travel period."
Southwest noted Thursday that Q3 comparison will be more difficult as its co-branded credit card agreement JPMorgan Chase (JPM) went into effect a year earlier. American Airlines recently forecast a $1.55 billion pretax income boost over the next 2-1/2 years from a similar deal with Citigroup (C), Mastercard (MA) and Barclays (BCS).
Meanwhile, Alaska Air Group (ALK) said earnings per share jumped 20% to $2.12, topping analyst forecasts. Total revenue rose 4% to $1.494 billion; analysts expected $1.498 billion.
Alaska Air Group agreed in April to buy Virgin America (VA) to strengthen its West Coast presence.
Alaska Air stock climbed 1.9%.
Hawaiian Holdings (HA), the parent of Hawaiian Airlines, closed down 0.6%. After the market close, Hawaiian rose modestly after reporting Q2 EPS of $1.21 on revenue of $594 million. Analysts had expected EPS of $1.15 on revenue of $591 million.
American reports earnings on Friday.
