United’s Growth Plan Sends Airline Stocks Into Tailspins

United Continental Holdings, Inc. sent the airline sector into a tailspin on Wednesday after telling analysts that it would increase capacity by 4% to 6% per year in the next three years in an effort to compete more aggressively with low-cost airlines. The news stoked fears of a price war that would cut into steadily rising profits at major U.S. carriers, dumping the Amex Airline Index (XAL) nearly 3%. United Continental stock fell nearly 9%, dropping to a two-week low.

Carriers have raised fees substantially in the past few years, showing fiscal discipline that had been lacking throughout the past decade, which featured a string of high-profile bankruptcies. Less leg room, higher baggage fees and other penny-pinching schemes have angered customers but thrilled shareholders, who have lifted the group to all-time highs. That could change if United follows through on its growth objectives, forcing competitors to lower prices to maintain market share. (See also: Why Airlines Aren’t Profitable.)

United Continental triggered a major sector decline after outlining aggressive growth plans that could ignite a worldwide price war. …read more

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Category: UAL, AAL

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