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

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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.

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

Shares of United pulled back 10 percent and were the biggest decliners in the S&P 500. Delta Air Lines fell 5 percent, while American Airlines and Southwest Airlines declined 5.5 percent and 3.3 percent, respectively.

United said it expects to increase capacity between 4 percent and 6 percent in 2018, adding it sees a similar growth rate in 2019 and 2020. This move could impact United’s profit margins as it tries to compete with lower fares offered by competing airlines as it will have to pay to operate those flights or potentially offer competitive fares to entice passengers on board. It could also lead other airlines down a similar path.

“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 between $6.50 and $8.50. Analysts polled by StreetAccount expected guidance of $6.99 per share.

—CNBC’s Leslie Josephs contributed to this report.