Airline stocks fall as fare wars set to continue with passengers looking for no-frills flights

DALLAS — Airline stocks fell Tuesday after Spirit and JetBlue fanned investor fears about lower fares.

Spirit said revenue from the average ticket tumbled by one-fifth in the third quarter compared with a year ago and pricing was “volatile.” JetBlue said its passenger-carrying capacity would grow slightly faster than previously expected for 2015.

In afternoon trading, shares of Spirit Airlines Inc. were down $3.64, or 9.6 per cent, to $34.23, and JetBlue Airways Corp. fell $1.25, or 4.8 per cent, to $24.96. Shares of bigger airlines American, Delta, United and Southwest were also lower but by smaller percentages.

Spirit is tiny compared to the giants, but it has gained their attention by growing rapidly at major hub airports in Atlanta and Dallas. Last week, American Airlines executives said they will soon introduce a cheaper, no-frills type of ticket to compete with Spirit and another low-cost carrier, Frontier.

American executives said they need to fight for customers who just want a cheap fare and don’t care about earning miles, getting upgrades or having a seat that will lie flat. The comments could portend more fare wars, and they briefly spooked American’s investors. The damage has been greater to Spirit, however — its shares have plunged nearly 20 per cent since Thursday.

On Tuesday, CEO Ben Baldanza said Spirit can hold on to its bargain-hunting passengers because his airline has lower costs than American or Delta Air Lines, which already offers a no-frills fare option. He said Spirit attracts price-conscious customers who often won’t fly on more expensive airlines.

“We have built a business for sort of the lowest 20 per cent of the ticket prices in the U.S.,” Baldanza said in an interview. “We understand who our customer is and what the price point of that customer base is.”

Spirit reported third-quarter earnings of $97.1 million, or $1.35 per share, topping Wall Street forecasts. Analysts surveyed by Zacks Investment Research had expected $1.30 per share; those surveyed by FactSet predicted $1.32.

The Miramar, Florida-based airline said revenue rose 10.6 per cent to $574.8 million, also beating analysts’ forecasts.

Spirit makes much of its revenue from fees that often cover things other airlines provide in the ticket price, such as carry-on bags and nonalcoholic beverages. Spirit passengers paid an average $66.96 per one-way trip for their tickets, a 21 per cent decline, and $53.39 for fees, a drop of 1 per cent.

At JetBlue, cheaper fuel helped the airline more than double its third-quarter profit to $198 million, or 58 cents per share, a penny better than the forecast of analysts surveyed by FactSet. Revenue rose 10 per cent.

JetBlue said 2015 capacity would rise as much as 9.5 per cent over 2014, a half-point higher than it had been saying. The airline said the increase was due to additional offerings of Mint, its premium service on flights between New York and California.

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