NEW YORK ( TheStreet) -- Right now, Wall Street isn't happy with the airline industry.
After three years of generally steady gains, industry shares tumbled last week, reflecting concerns over pricing and capacity. Airline shares fell 5% to 10% and about $12 billion in market capitalization was destroyed.
The decline shows that Wall Street analysts and investors definitely have an effective way of making their concerns known. But that doesn't mean Wall Street is always right.
Rather, analysts are so narrowly focused on their favorite topics -- which include capacity restraint and ancillary revenue growth, as well as the current burning debate over which is more important, revenue per available seat mile or profit margin -- that they sometimes seem to miss the bigger points, which are that at times airlines must seize growth opportunities and that customer amenities matter, even if they cost money.
Here are four recent examples, starting with the most recent, of cases in which Wall Street seems to have made or is making misjudgments.
Southwest Growth at Love Field
Analysts widely view Southwest's (LUV) growth at Dallas Love Field as a negative.
Arguably, Southwest has been performed better financially than any airline in history. It has never sought bankruptcy protection. It has never laid anybody off. Its employees are among the industry's highest paid. In March, it paid its 154th consecutive dividend.
Nevertheless, Southwest shares declined 12% last week, largely due to projected Love Field growth.
The growth reflects the October 2014 expiration of the Wright Amendment. The law took effect in 1980 and prohibited nonstop flights from Love Field to most U.S. destinations. It initially allowed flights only to Texas, Oklahoma, New Mexico, Arkansas and Louisiana. Later, Missouri, Alabama, Kansas and Mississippi were added.
CEO Gary Kelly began calling for its repeal in 2004. A phase-out was negotiated in 2006. Ever since then, Southwest has been saying it would expand service at Love Field when the law expired, and that is exactly what happened.
Remarks made Tuesday by Southwest CEO Tammy Romo, who spoke an in investor conference, triggered the shares' decline, even though Romo said the new flights are performing well.
"The demand is very strong for those (new) flights," she said. "We have 20% of (capacity) in developmental markets, largely at Love Field. The fact that we are able to generate such stellar margins on that capacity, with Love Field at a very high level (means) we are confident in the capacity we are adding at Love Field."
Analysts said if you want to grow at Love Field, don't grow overall capacity. Just eliminate your worst-performing routes and move the airplanes.