U.S. airlines on Tuesday tried to reassure investors about the strength of travel demand, a day after United Airlines stoked worries about the industry's pricing power. Even as executives in other sectors of the economy have warned of recession risks, airline chief executives until now have remained upbeat as consumer travel demand stayed strong. But United's unexpected profit warning caught investors by surprise.
"To have an airline warn of weaker growth starts to put the service sector of the economy closer in alignment with the goods sector, and paint a weaker picture for investors," said Jack Ablin, chief investment officer at Cresset Capital. United's CEO Scott Kirby on Tuesday tried to explain away the change in the quarterly outlook, saying at a JPMorgan investor conference that the company's earlier forecast was a "bad" one.
Other airline chiefs told the conference that they were still optimistic. Delta Air Lines Inc CEO Ed Bastian said in the past 30 days, the airline has recorded the 10 highest sales days in its history. "If anyone's looking for weakness, don't look at Delta," Bastian said. Delta reaffirmed its first-quarter outlook, saying travel demand is strong and getting stronger. American Airlines CEO Robert Isom said the Texas-based carrier was enjoying "tremendous" demand.
The month-on-month increase in airfare in February was the fastest in nine months, according to the U.S. Labor Department. Airline ticket prices have gone up due to persistent capacity constraints and an unending thirst for travel after pandemic-related restrictions ended. That has helped carriers mitigate cost pressures. Michael Matousek, head trader at U.S. Global Investors which owns 1.6% stake in United, said while the firm still believes in the airline's business model and its product, such a big change in its earnings outlook has "shaken" investor confidence. United shares were down 6% at $45.82 in afternoon trade. Shares of Delta and American Airlines were down 0.8% and 1.6%, respectively. United's Kirby said consumer demand remained strong, with March turning out to be the strongest month in the current quarter, with similar trends in April and better pricing power and revenue likely in May and June. Kirby also reaffirmed United's full-year outlook, though he acknowledged that the revision to quarterly guidance put a question mark on the credibility of the company's outlook for the rest of the year. "Everyone up here hates that we missed the forecast," he said. "The bigger picture is the outlook looks really strong."