NEW YORK (TheStreet) -- Now it is Southwest Airlines (LUV) that finds itself in Wall Street's doghouse, as the carrier continues to grow capacity.
Wall Street analysts generally resist capacity growth, believing it can lead to lower fares and lower revenue per available seat mile, not just for the expanding airline but for competitors as well.
A frequently referenced rule of thumb is that airline capacity growth should be in line with GDP growth. US GDP grew 2.4% in 2014 and 0.2% in the first quarter of 2015.
Southwest grew capacity as measured by available seat miles (ASMs) at 6% in the first quarter of 2015. It now foresees full-year growth of 7% to 8% for the full year, up from previous guidance of 7%, Chief Financial Officer Tammy Romo said Tuesday at the Wolfe Research transportation conference. That troubles some analysts.
Southwest shares closed Tuesday at $40.91, down $1.23 or nearly 3%. Most airline shares fell, but none fell as much as Southwest. Year-to-date, Southwest shares are down 3%.
At the conference, Wolfe Research analyst Hunter Keay, a staunch advocate for capacity restraint grilled Romo about the planned growth.
Romo emphasized that most of Southwest's growth is coming at Dallas Love Field, where the carrier is expanding following the 2014 expiration of the Wright amendment, which strictly limited non-stop flying.
"We have been planning for a very long time to expand service out of Love Field," Romo said. "We have 18 of the 20 gates and we're going to fly out of those.