Why Airline Shares Plunged
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of airlines including Delta (NYS: DAL) , United Continental (NYS: UAL) , US Airways (NYS: LCC) , and JetBlue Airways (NAS: JBLU) were getting grounded by investors today after Delta reported weaker-than-expected numbers for May. Delta's stock dropped as much as 12%, United slid 8%, US Airways was off 11%, and JetBlue lost as much as 6%.
So what: For the month of May, Delta said that passenger revenue per seat mile -- a key measure of the airline's business -- was up 6%. The company had recently projected that the measure would rise 7%. Delta noted that May's results are on top of a strong May performance last year, which makes the month still look "strong." Delta chalked up the soft performance to "competitor fare actions" in the back half of the month.
Now what: The airline industry has historically been a tough one for investors, and one that this Fool mostly avoids. The May numbers for Delta don't look as terrible as the plunging stock suggests, but they're nevertheless concerning since it was a surprise to Delta and its own forecasts. This disappointment follows closely on the heels of Delta's announcement that it's cutting back capacity more than expected. The data out of Delta is also a reminder to investors of just how cutthroat this industry is.
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