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U.S. airlines stocks tumbled on Tuesday as investors were spooked by downbeat forecasts from Alaska Air Group and a warning on jet engines by aerospace giant RTX. Investors have been on the guard after U.S. inflation data in July showed a third consecutive monthly decline in fares, with prices dropping at their fastest pace since February 2021. Alaska said it expects total revenue in the third quarter to be flat to up 3%, compared with a 6.8% rise in the second. Its revenue growth forecast for 2023 missed Wall Street estimates.
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"The third-quarter guide looks a little softer than we had anticipated," Citi analyst Stephen Trent said in a research note. Alaska's shares plunged 9.3% in afternoon trade, dragging United Airlines, American Airlines, Southwest Airlines, and Delta Air down between 2.5% and 5%. The S&P 1500 passenger airlines index has climbed 28.3% so far this year, powered by a surge in air travel demand since the end of the COVID-19 pandemic.
RTX, formerly Raytheon, said a "significant portion" of its Pratt & Whitney GTF engines that power Airbus A320neo jets will need "accelerated removals and inspections". The problem will force an inspection of 1,200 out of more than 3,000 engines over the next nine to 12 months, the company added, sending its stock plunging 14%. The recall issue is generally casting a shadow over the aerospace and airline stocks, said Art Hogan, chief market strategist at B Riley Wealth in Boston.
"You've got the potential for flight cancellations if airlines have to take any of their planes offline and have them retrofitted with whatever parts are deemed necessary to be replaced," he added. Spirit Airlines and Jetblue Airways, which are waiting to complete a merger, operate A320neo planes, according to Cirium data. Jetblue's shares fell about 5%, while those of ultra-low-cost carrier Spirit Airlines declined about 3%. Paris-listed shares of Airbus fell 2%.