American Air and Southwest Selloffs are Misguided, Analyst Says

NEW YORK ( TheStreet) -- A veteran airline analyst said Wall Street's overreaction has triggered double-digit declines in shares of most major airlines over the past 10 days.

Since May 19, shares in American (AAL), Delta (DAL), Southwest (LUV) , Spirit (SAVE) and United (UAL) have all shown double-digit declines.

Two key events occurred on May 19. First, Southwest CEO Tammy Romo nudged up the carrier's growth rate guidance from 7% to between 7% and 8%. Also, American CEO Doug Parker said American would "compete aggressively" on price with low-fare carriers.

Referring to the remarks by Romo and Parker, Imperial Capital analyst Bob McAdoo said, "In our opinion, investors and some sell-side analysts appear to be misunderstanding these comments and seem to be concerned that management teams have lost discipline in light of lower jet fuel prices. We disagree."

A May 26 story on TheStreet, titled "4 Biggest Mistakes Wall Street Makes When It Looks at Airlines" reflected similar views.

In a report issued Thursday, McAdoo said "most current capacity levels were planned well before the decline in jet prices," particularly Southwest's decision to grow at Dallas Love Field and to use slots at Washington National freed up by divestitures as part of the American/US Airways merger.

During the current quarter, "most carriers will likely report earnings that are 40%-50% higher than their previous historic best quarters," McAdoo wrote.

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