Declining airfare is great news for travelers. However, it’s not great news for airline stocks, which must compete for that much less reward overall. Several airlines found their stocks heading downward in Wednesday afternoon’s trading, though some significantly more than others. Leading the way down was Mesa Air Group (NASDAQ:MESA), which saw a bad situation only get worse.
Mesa wasn’t alone in its decline, though. Joining it on a downward track were Frontier Group (NASDAQ:ULCC), Spirit Airlines (NYSE:SAVE), Spirit’s potential buyer JetBlue (NASDAQ:JBLU), and SkyWest (NASDAQ:SKYW). The ranges were significantly different; at one point, Mesa lost over 5% of its share price in Wednesday afternoon’s trading, while SkyWest got off the lightest, down only fractionally. However, the reason remained the same for most losses: declining airfares.
Airfares had been on the decline since March, noted a report from the Bureau of Transportation Statistics. And after four straight months of decline, it wasn’t looking up. March saw airfares lose 6.5% year-over-year, while April saw a smaller 2.6% loss. May saw losses increase by 3%, and June fell by a whopping 8.1%. Interestingly, the problem isn’t so much one of demand; booking demand is still considered “strong,” though the benefit of higher demand tends to go to larger airlines that work internationally, like Delta (NYSE:DAL). Here, airlines are actually suffering from lower fuel costs and improved cost pictures, which leaves less justification for higher fares.
Overall, Wall Street expects the least out of Spirit Airlines. Rated a Moderate Sell by analyst consensus, its $10 average price target means 47.89% downside risk. Frontier Group, meanwhile, has the most expectations. It’s a Strong Buy by analyst consensus, and with an average price target of $14.83, it comes with a 45.82% upside potential.
