This post contains references to products from one or more of our advertisers. We may receive compensation when you click on links to those products. For an explanation of our Advertising Policy, visit this page.

Tuesday night, United’s management held an earnings call to discuss its earnings in the fourth quarter of 2017. The last time United’s CEO Oscar Munoz took the mike during an earnings call, the stock price tumbled 12%, erasing $2.5 billion from the company’s market value. Turns out Tuesday’s call was followed by another drastic drop in stock price. But this time, the selloff spread across all airline stocks in the US. Across the six largest US-based airlines, stock values have dropped a combined $8.5 billion since the United earnings call began.

Image of United CEO Oscar Munoz by Antonio Perez/Chicago Tribune/TNS via Getty Images.
United CEO Oscar Munoz (Image by Antonio Perez/Chicago Tribune/TNS via Getty Images)

Two aspects of the call seem to have investors spooked. First, United admitted that it must compete with ultra-low-cost airlines on price; instead of differentiating on service, the airline is going to have to drop fares to match low-cost rivals.

And, it’s not a limited issue. Chief Financial Officer Andrew Levy noted the airline has “a lot of airports that we’re seeing a lot of price or cost pressure” and that the they “expect that will continue.”

United President Scott Kirby agreed:

The best way to be able — first the best way to compete with a low cost carrier is master prices. Half our revenue approximately comes from customers that are mostly shopping on price. And we cannot ignore half of our revenue and we can’t let our low cost carriers have price advantages in our hubs and no one chooses to fly on an ultra low cost carrier, if they can get the same price on United Airlines.

For investors looking for revenue growth to drive earnings, this is a clear indication that the airline isn’t going to be able to grow as fast as analysts want.

The next shoe to drop was United’s plans for a massive capacity increase. United management indicated that it’s going to expand domestic capacity by over 6% a year. And, as we know from the supply-demand curve in Economics 101, more supply with the same demand leads to lower prices.

And this may have been what caused the industry-wide stock selloff. As of 11am Eastern Wednesday, the largest six US carriers had all dropped significantly from close of business Tuesday — before the United earnings call:

  • United Continental (UAL): down 10.63%, loss of $2.5 billion in value
  • Delta Air Lines (DAL): down 5.39%, loss of $2.3 billion in value
  • American Airlines (AAL): down 6.60%, loss of $1.8 billion in value
  • Southwest Airlines (LUV): down 3.59%, loss of $1.4 billion in value
  • Alaska Air (ALK): down 5.04%, loss of $431 million in value
  • JetBlue Airways (JBLU): down 2.44%, loss of $177 million in value

That said, most of these losses simply pare back the large stock gains most of these airlines had seen so far in 2018:

Image courtesy of Google Finance.

Feature by Gary Hershorn/Getty Images

The best beginner points and miles card out there.
Chase Sapphire Preferred® Card

With great travel benefits, 2x points on travel & dining and a 50,000 point sign up bonus, the Chase Sapphire Preferred is a great card for those looking to get into the points and miles game. Here are the top 5 reasons it should be in your wallet, or read our definitive review for more details.

Apply Now
More Things to Know
  • Earn 50,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That's $625 toward travel when you redeem through Chase Ultimate Rewards®
  • Chase Sapphire Preferred® named a 'Best Travel Credit Card' by MONEY® Magazine, 2016-2017
  • 2X points on travel and dining at restaurants worldwide & 1 point per dollar spent on all other purchases.
  • Earn 5,000 bonus points after you add the first authorized user and make a purchase in the first 3 months from account opening
  • No foreign transaction fees
  • 1:1 point transfer to leading airline and hotel loyalty programs
  • Get 25% more value when you redeem for travel through Chase Ultimate Rewards. For example, 50,000 points are worth $625 toward travel.
  • No blackout dates or travel restrictions - as long as there's a seat on the flight, you can book it through Chase Ultimate Rewards
Intro APR on Purchases
N/A
Regular APR
17.74% - 24.74% Variable
Annual Fee
$0 Intro for the First Year, then $95
Balance Transfer Fee
Either $5 or 5% of the amount of each transfer, whichever is greater.
Recommended Credit
Excellent Credit

Editorial Disclaimer: Opinions expressed here are author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.