U.S. airline stocks moved closer to their biggest annual decline in five years after Credit Suisse Group AG said a critical financial gauge won’t turn positive until the end of next year and trimmed earnings estimates for the largest carriers through 2018.

Rising fuel prices, an unwillingness to reduce capacity growth and increased labor costs are adding to a gloomy outlook for carriers that are already contending with sustained declines in passenger revenue for each seat flown a mile, Julie Yates, an analyst at Credit Suisse, said in a note to clients Wednesday. She cut her recommendation on American Airlines Group Inc. to sell from buy, while dropping United Continental Holdings Inc. to hold from buy.

The Bloomberg U.S. Airlines Index has tumbled about 26 percent in 2016, putting it on track for the largest annual decline since 2011. The drop has been fueled by stepped-up concerns that carriers haven’t acted to curb growth of available seats that’s expanding faster than gross domestic product, a proxy for travel demand. Revenue for each seat flown a mile at the largest carriers has declined on an annual basis for more than a year.

“Since January, we are less optimistic overall on the industry’s ability to recapture pricing in a rising fuel environment, particularly outside the U.S.,” Yates said. “Capacity growth continues to outpace GDP in all regions and the industry’s willingness to trim growth with oil still in a historically inexpensive range of $50 a barrel is low.”

The airlines index fell 2.3 percent at 12:45 p.m. in New York.

Disillusionment Persists

“The disillusionment with owning airlines will persist” until unit revenue shows firm evidence of improvement, Yates said. She cut earnings estimates for American, United and Delta Air Lines Inc. for this year, 2017 and 2018 and her stock-target prices for American and United.

The 11 largest U.S. airlines will report a second-quarter pretax profit of $6.2 billion, down from $6.5 billion a year earlier, Michael Linenberg, a Deutsche Bank AG analyst, said in a note Wednesday. That would mark the first year-over-year drop in quarterly earnings since the final three months of 2012, and is largely due to weaker-than-expected revenue, he said.

Linenberg also cut his forecast for the industry’s net income by 8 percent this year to $14 billion and by 14 percent to $13.3 billion for 2017, indicating earnings have peaked.

Delta reported Tuesday that passenger revenue for each seat flown a mile fell 5 percent in the second quarter. The carrier blamed the performance, which fell short of its own expectations, partly on lackluster demand for pricey tickets booked shortly before travel.

Yates maintained her recommendation to buy Delta and domestically focused carriers Southwest Airlines Co. and Spirit Airlines Inc.

To contact the reporters on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net, Michael Sasso in Atlanta at msasso9@bloomberg.net. To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Bruce Rule

©2016 Bloomberg L.P.

This article was written by Michael Sasso andMary Schlangenstein from Bloomberg and was legally licensed through the NewsCred publisher network.

Photo Credit: Delta is among many U.S. airlines facing revenue pressure. Lucas Jackson / Reuters