Airline stocks are slumping today after several U.S. carriers announced plans to reduce capacity this year.
In releasing their second-quarter results, both American Airlines (NASDAQ:AAL) and United Airlines (NASDAQ:UAL) said they plan to scale back their growth in this year’s second half. The airlines are grappling with delayed and canceled flights this summer due to surging travel demand and staff shortages coming out of the Covid-19 pandemic.
The scaled back capacity plans are sending the stocks of all major U.S. carriers down today. Shares of AAL and UAL as well as Delta Air Lines (NYSE:DAL) and Southwest Airlines (NYSE:LUV) are each down today, with United leading the decline and slumping 7%. The share prices of large U.S. airlines have struggled this year and remain down across the board.
What Happened With Airline Stocks
American Airlines, the world’s biggest carrier, reported its first quarterly profit since the pandemic began more than two years ago. The Fort Worth, Texas-based airline announced a Q2 profit of $476 million as travel demand surges with the end of Covid-19 travel restrictions.
While the profit is positive news, American Airlines said it plans to limit its expansion for the remainder of this year, saying it will fly 8% to 10% below 2019 capacity in the current quarter. It expects the move will help it better manage customer demand and lower the number of flights it is delaying or canceling.
Similarly, United Airlines reported its first quarterly profit since the pandemic started, announcing a Q2 profit of $329 million. However, the Chicago-based airline also said that it plans to reduce capacity to 85% in the third quarter and 90% in the fourth quarter as it seeks to become more reliable for the traveling public.
Why It Matters
While news of the profits at American Airlines and United are encouraging, reduced capacity and plans to scale back growth are not what investors want to hear. Consequently, airline stocks are falling today. Though it should be noted that American Airlines said, despite its lowered capacity, its revenue is still expected to grow as much as 12% from 2019 levels in Q3 due to higher airfare prices.
American Airlines and United say they have no choice but to reduce capacity as they struggle with flight cancellations and delays. Both are still seeing surging demand and staff shortages following the global pandemic that had grounded much of their fleets for more than a year. U.S. airlines have canceled more than 100,000 flights so far this year, including 30,000 cancellations since the end of May, according to FlightAware.
What’s Next for Airline Stocks
Airline stocks took a hit across the board as each plan to pull back on their capacity and expansion plans this year to reduce flight delays and cancellations. While discouraging, this is likely a case of short-term pain for long-term gain and investors should try to see the positives in the airlines’ Q2 earnings prints.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.