Airline shares are plunging after United forecast raises price-war concerns

Key Points
  • Shares of United pull back 11.4 percent after it said it expects to increase annual capacity by 4 to 6 percent through 2020.
  • American, Delta and Southwest shares also fall.
A United Airlines airplane passes the skyline of lower Manhattan and One World Trade Center as it heads to a runway at Newark Liberty Airport on January 20, 2018 in Newark, New Jersey.
Gary Hershorn | Getty Images

Airline stocks fell Wednesday after United Continental's growth plans raised concern it could drive down fares.

Shares of United pulled back 11.4 percent, the biggest decliner in the S&P 500. American Airlines declined 6 percent, while Delta Air Lines fell 5.2 percent and Southwest Airlines dropped 4.7 percent.

United said it expects to increase annual capacity by 4 percent to 6 percent through 2020. This move could squeeze United's profit margins because it could lead other airlines down a similar path, forcing a drop in fares.

"We definitely understand management's decision to focus on improving their domestic network as the company admittedly shrunk too much post the Continental merger, but that was almost a decade ago and investors are likely to be somewhat frustrated by the company's aggressive growth rate," Cowen analyst Helane Becker said in a note Wednesday.

"The stock is unlikely to reflect the company's potential in the near-term as we anticipate competitive actions and investor concerns regarding overcapacity," Becker said.

United also said it expected full-year earnings per share to range $6.50 to $8.50. Analysts polled by StreetAccount expected guidance of $6.99 per share.

—CNBC's Leslie Josephs contributed to this report.