NEW YORK (TheStreet) -- Shares of Southwest Airlines (LUV) are down by 8.09% to $37.60 in mid-afternoon trading on Wednesday, as the airline sector takes a hit due to signs that a year filled with low fuel costs has left airlines positioned to increase competition for customers with cut-rate fares and more routes, Bloomberg reports.
Southwest saw its biggest drop in three years this afternoon, while American Airlines (AAL) is having its worst day since coming out of bankruptcy in 2013.
American Airlines CEO Doug Parker said on Tuesday, that the company plans to "compete aggressively" against discount carries, in an interview with Bloomberg.
Carriers are able to finance expansion projects and offer customers less expensive flights as oil prices remain near $60 per barrel, Bloomberg noted, adding that Southwest led Wednesday's declines following CFO Tammy Romo's comments that the airline upped its 2015 expansion plan to as much as 8%.
Romo said the decision isn't related to fuel savings, which are forecast to be as much as $1.3 billion in 2015, but she did estimate it would take at least two years before new markets generate returns, Bloomberg said.
Additionally, analysts at Buckingham downgraded Southwest to "neutral" from "buy" citing a more cautious revenue outlook for the company amid a worsening competitive backdrop, theflyonthewall.com reports.
For more on Southwest click here.
Insight from TheStreet Research Team:
Today, Southwest Airlines hit an air pocket, breaking beneath its 200-day moving average for the first time since 2012 to reach a six-month low. Stocks that break their 200-day MA are falling out of favor with investors. This is true whether or not you believe the reason for the move is valid.
Southwest's situation isn't company-specific. The entire airline sector...is trading beneath its 200-day MA for the first time in six months.
Why the sudden turn against airline stocks? American Airlines struck a cautious tone last night at an investment dinner. Issues raised by company officials included industry capacity and margin compression.
-Ed Ponsi "Airline Stocks Are in Descent Mode" Originally Published on 05/20/2015 on Real Money Pro.
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Separately, TheStreet Ratings team rates SOUTHWEST AIRLINES as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:
"We rate SOUTHWEST AIRLINES (LUV) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, impressive record of earnings per share growth, solid stock price performance, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel its strengths outweigh the fact that the company shows low profit margins."
You can view the full analysis from the report here: LUV Ratings Report