American Airlines Group Inc. (AAL.O) tumbled and pulled other carriers in its wake after saying 2018 earnings could fall short of its forecast because domestic fares were weaker than expected.

Adjusted earnings will be US$4.40 to US$4.60 a share, the carrier said Thursday in a regulatory filing. American had forecast profit of as much as US$5, and analysts had anticipated US$4.62.

The update compounded a bleak outlook for U.S. carriers as economic uncertainty threatens global demand. Delta Air Lines Inc. recently trimmed its forecast for a key gauge of pricing power and set the stage for a gloomy earnings season, which kicks off next week for the major carriers.

American pared its expectation for that benchmark as well, saying fourth-quarter revenue from each seat flown a mile increased just 1.5 per cent from a year earlier. The Fort Worth, Texas-based airline had forecast that so-called unit revenue could rise as much as 3.5 per cent but said Thursday that improvements from a strong quarter a year earlier weren’t as great as anticipated.

American dropped 11 per cent to US$29.88 at 9:45 a.m. in New York, leading a Standard & Poor’s index of five major airlines down 6.1 per cent. Airlines were the second-worst performing group in the S&P 500.

Fuel Costs

Low fuel prices are presenting a two-edged sword to airlines. While fuel costs have been rising since the start of the year, they still remain below where they were a year ago. That keeps expenses in check but also removes an incentive to raise fares. Investors fear that lower fuel prices also will sway carriers to increase capacity, which typically depresses ticket prices.

“Revenue momentum is really the key metric in this industry,” said Jack Atkins, an analyst at Stephens Inc. “If folks think revenue momentum is slowing, then their outlook for the stocks dims a bit. It’s just where investor mindset is.”

Delta had cited a weaker-than-expected end to the holiday season. American was less forthcoming in its statement, noting that comparisons were difficult in relation to a particularly strong year-earlier quarter.

“It’s somewhat hard to read,” said Susan Donofrio, a Macquarie Group Ltd. analyst. “The last two days of December, given where the holidays fell, there wasn’t a lot of business. It’s hard to interpret.”

Next week will be crucial, she said, as Delta and United Continental Holdings Inc. report results Jan. 15 and should provide information on forward travel bookings.