Southwest Airlines Co (LUV) Stock Price Plunges 8%, Sending American Airlines Group Inc (AAL) And United Continental Holdings Inc (UAL) Tumbling

Shares of Southwest Airlines Co. (NYSE:LUV) tumbled more than 8 percent Wednesday after the company warned this week it expects passenger unit revenue to drop this quarter. The announcement sent airline stocks tumbling, with the Dow Jones Transportation Average falling 1.5 percent.

In afternoon trading Wednesday, Southwest’s stock fell 8.7 percent to as low as $37.28.

The Dallas, company announced Tuesday it expects passenger revenue per available seat mile to fall 3 percent in the second quarter from a year ago, more than a previous forecast for a decline of 2 percent. Passenger unit revenue, or PRASM, is a measure of passenger revenue production based on the total available seat miles flown during a particular period.

For the quarter ended March 31, revenue per available seat mile (PRASM) rose 0.3 percent to 12.94 cents from a year earlier. However, the second quarter is forecast as more challenging, largely due to last year's “exceptional and above-trend performance,” the company said in April.

The Dow Jones Transportation Average dropped 1.5 percent as airline stocks dropped across the board. Shares of United Continental Holdings Inc. (NYSE:UAL) dropped 9 percent, while American Airlines Group Inc. (NASDAQ:AAL) tumbled 8 percent to as low as $43.68, below the stock’s 200-day moving average. Meanwhile, JetBlue Airways Corporation (NASDAQ:JBLU) and Delta Air Lines, Inc. (NYSE:DAL) lost 6 percent and 5 percent, respectively.

Airline stocks traded in a broad decline Wednesday, as investors focus on capacity additions with a worrying eye, Jim Corridore, analyst at S&P Capital IQ, said in a research note Wednesday. “We think lower energy prices are still the more compelling story for the group, and we would expect airline managements to adjust capacity should signs of yield degradation appear,” Corridore said.

Airliners have seen profits rise recently because of substantially lower fuel prices. Southwest’s profit nearly tripled in the quarter ended March 31 after the airliner reported first-quarter net income of $453 million, or 66 cents a share, on revenue of $4.4 billion, compared with a profit of $152, or 22 cents per share, on sales of $4.17 billion a year ago.

Southwest’s first quarter fuel costs were $2.00 per gallon, compared with $3.08 per gallon in during the same period in 2014, resulting in over $450 million in economic fuel cost savings, the company said in April. Southwest said it expects to pay $2.00 per gallon for jet fuel this quarter.

“We think that airline execs have learned from past costly mistakes on adding too much capacity, and consolidation and focus on areas of strength have left the industry in good shape competitively, in our view,” Corridore said.

Available seat miles, or ASMs, is also referred to as "capacity," which is a measure of the space available to carry passengers in a given period. Southwest forecast a 5 percent rise in available seat miles for 2016.

Shares of Southwest have lost 11 percent in 2015.