Let's face it: It's been a chaotic summer for airline stocks.
Soaring fuel costs are squeezing margins for carriers and sending ticket prices soaring, and pent-up demand for travel following two years of the pandemic is being challenged amid the sticker shock.
What's worse, chronic delays and cancellations thanks to labor issues in the industry are testing travelers' patience as they consider the high cost of airfare.
Even with these headlines, travel trends are bright. "Demand for air travel is clearly back this summer," says Peter McNally, global sector lead for industrials, materials and energy at research firm Third Bridge Group.
True, inflation has created a "major headache" in the form of rising costs for the industry, he says, creating a less profitable business than before the pandemic, even as "the underlying demand for air travel is strong." But, business and long-haul international travel have yet to recover like leisure has, and these two areas "will be an important source of future profits" for the industry, he adds.
Read on as we take a closer look at how seven airline stocks look amid this rocky road to recovery. Not all names are created equal; the best airline stocks are flying on far sturdier wings than their peers. We'll look to identify the strongest candidates.
Data is as of July 25. Analyst ratings provided by S&P Global Market Intelligence.
- Market value: $3.9 billion
- Analyst ratings: 5 Strong Buy, 3 Buy, 0 Hold, 0 Sell, 0 Strong Sell
In a challenging environment, flexibility is key for airline stocks – and, as a result, Air Lease (AL, $34.95) is looking up.
Air Lease is exactly what it sounds like. It buys, sells and leases aircraft to global carriers and other third parties, including fellow leasing companies, financial services firms and airlines. In addition, the company provides fleet management services to investors and owners of aircraft portfolios.
At the beginning of 2022, AL owned a fleet of nearly 400 aircraft. And with the "just-in-time" scheduling that creates nightmares for undersupplied airlines, the company has been able to rent out that fleet consistently and at premium prices.
This fiscal year, revenue for the mid-cap stock is expected to jump more than 13%. And in 2023, sales should increase almost 20%. While Air Lease is expected to operate in the red in 2022, earnings will surge next year as its business continues to capitalize on booming demand and significant investments for the future.
AL has a massive backlog of 430 new aircraft on order from Boeing (BA) and Airbus (EADSY) set to deliver through 2028, which could kick off a new chapter in the long-term growth of one of Wall Street's best airline stocks.
Air Transport Services
- Market value: $2.2 billion
- Analyst ratings: 5 Strong Buy, 0 Buy, 0 Hold, 0 Sell, 0 Strong Sell
Air Transport Services Group (ATSG, $29.52) isn't one of the traditional airline stocks, rather it's a logistics player with a homegrown fleet of more than 100 aircraft. And it's one of the rare names in this industry that has squeaked out a year-to-date gain in 2022, even amid high fuel costs and supply-chain disruptions that linger in the wake of the pandemic.
On top of its freight operations, ATSG provides third-party services such as maintenance, crew training, leasing of ground support gear, fueling support and more.
Because of its unique areas of expertise, ATSG has been able to figure out a path to growth and success, even as larger and more traditional airlines have struggled. Revenue is set to grow by almost 16% this year and another 10% in fiscal 2023.
But perhaps even more impressively, Air Transport Services was operating at a profit last year, even as many other airline stocks were in a tailspin – and those profits are expected to leap almost 30% this year and another 12% or so in fiscal 2023, if projections hold.
It's tempting to go with airline stocks you recognize from your own travels, but ATSG is a cut above the rest right now. Given its deep relationships with customers and its logistical expertise, it clearly has what it takes to survive this challenging environment and plot a long-term path to success.
- Market value: $5.5 billion
- Analyst ratings: 7 Strong Buy, 3 Buy, 1 Hold, 0 Sell, 0 Strong Sell
Regularly ranked as one of the top carriers when it comes to customer satisfaction – and a favorite stock of Wall Street pros – Alaska Air Group (ALK, $43.74) stands to benefit significantly from recovering air travel trends in the wake of COVID-19.
The biggest proof of this: The airline just reported $2.7 billion in operating revenues for the second quarter, the highest quarterly tally in company history.
What's more, ALK has surged back to profitability, with projections of $3.83 in earnings per share for all of 2022. And this is while many of its competitors are still in the red.
Alaska Air Group is admittedly smaller in its footprint, at a market capitalization of only $5.5 billion at present, but it clearly knows how to manage its growth in a responsible way. This includes new routes this summer to connect with Cleveland and Miami – proving that Alaska Air is reaching far beyond its home state as it builds on prior successes.
Longer term, ALK just announced in March that it is planning to expand its fleet with bigger Boeing 737-10 planes and longer-range 737-8s. These are part of the 737 MAX family of planes that will help it achieve even bigger growth in the years ahead. That bodes well for the future of this top airline, as well as its shares.
China Eastern Airlines
- Market value: $12.0 billion
- Analyst ratings: 1 Strong Buy, 0 Buy, 0 Hold, 0 Sell, 0 Strong Sell
China Eastern Airlines (CEA, $18.18) is the most exotic of the airline stocks on this list. CEA is a regional and mostly state-owned carrier that serves this important Asia economy.
While some old-school investors may bristle at the idea of government ownership of private enterprise, it's important to acknowledge that the U.S. government has intervened many times in the domestic airline industry via bailouts and bankruptcies. And furthermore, the division of China's airspace into state-owned regionals – CEA, along with Air China (AIRYY) and China Southern Airlines (ZNH) – means effective monopolies in their respective territories.
Beyond passengers, the company offers cargo, mail delivery and other services via its fleet of almost 800 aircraft. That puts it neck and neck with Southwest Airlines as measured by planes, but half the market capitalization!
True, China is struggling to recover from the pandemic as fast as some Western markets. And it's reasonable to wonder how air travel within the nation will fare amid the current commodity crunch that is really putting a hurt on many of China's core industries and growth plans. However, CEA is a unique emerging market play that may make sense for long-term investors.
Shares of the Chinese stock have held out in a rough 2022, down just 1.5% for the year-to-date – much better than big losers like Allegiant Travel (ALGT), which is off almost 38% in the same time frame.
- Market value: $24.1 billion
- Analyst ratings: 11 Strong Buy, 5 Buy, 4 Hold, 0 Sell, 0 Strong Sell
One-time regional player Southwest Airlines (LUV, $40.62) is now a $24-billion mainstay of domestic airline travel. It made its reputation based on great customer service and super-efficient fleet management. And both those factors show, with strong bookings this year, as well as a return to profitability – even as some peers are still operating at a loss halfway through 2022.
Shares took it on the chin this June as major carriers struggled with an onslaught of flight delays and cancellations. And as news continued to break this summer about high labor costs, expensive jet fuel and fears of a COVID-19 resurgence, LUV was caught in a tailspin.
Not for long, of course. Shares are up almost 20% from their mid-June lows thanks to expectations that Southwest will weather these challenges better than most. In fact, a recent report showed that LUV's small-but-shrewd team of fuel traders managed to save the firm $1.2 billion this year by hedging against rising energy prices.
As a result, the company's operating profit margin is comfortably in the double digits – and almost two times some of its major competitors in the airline industry. That kind of capable management is exactly what investors need in the short-term, and will provide peace of mind for those looking to buy and hold the best airline stocks.
- Market value: $2.6 billion
- Analyst ratings: 3 Strong Buy, 2 Buy, 4 Hold, 0 Sell, 0 Strong Sell
Spirit Airlines (SAVE, $24.01) is the discount airline with the trendy ticker symbol. It is also the only traditional airline stock valued at $2 billion or more that has actually posted a year-to-date gain in 2022. That 10% rise in Spirit's share price shows it's not just among the best companies in this industry, but also proof that it has a lot to offer even in a stormy economic environment that is battering consumer stocks of all sorts.
The sole motivator for its ascent is, of course, was a bidding war for Spirit between carriers Frontier Group Holdings (ULCC) and JetBlue Airways (JBLU). Negotiations were underway for months after the initial news broke in February that Frontier was leading the merger. JetBlue then countered in April – and eventually turned hostile in its takeover attempt.
On July 27, SAVE said that it had terminated its proposed merger with Frontier, and the following day, news broke that Spirit would be acquired by JetBlue for $3.8 billion. The combination of SAVE and JBLU will make it the fifth-largest domestic carrier. That's a game changer in the long term, but also will help provide economies of scale in an environment where high fuel costs and uncertain consumer spending are causing problems for many competitors. The merger is likely to face regulatory scrutiny.
On its own, Spirit didn't make any money last year and is forecast to post another loss this year (albeit a smaller one). However, its operations still clearly have something to offer – and based on the bidding war, its shares might have a bit more upside, too.
United Airlines Holdings
- Market value: $11.9 billion
- Analyst ratings: 5 Strong Buy, 3 Buy, 9 Hold, 2 Sell, 1 Strong Sell
United Airlines Holdings (UAL, $36.34) is one of the "big three" legacy carriers based out of the U.S., alongside Delta Air Lines (DAL) and American Airlines Group (AAL). However, American continues to bleed red ink – so much so it has sparked bankruptcy chatter in 2022 – and Delta started airlines' Q2 earnings parade with ugly numbers that missed the mark looking backwards and disappointed on forward guidance to boot.
UAL certainly isn't perfect. However, following two years of the pandemic, there is incredible demand for airline travel despite sky-high ticket prices. So those carriers that manage to muddle through may see big success – and as perhaps the most attractive of the big three airline stocks, United could benefit the most.
In fact, Citigroup and Cowen analysts recently reiterated Buy recommendations after earnings – and Citi's price target is a whopping $56, representing implied upside of about 54% to current levels.
Amid soaring fuel costs and labor disruptions, United is not out of the woods – although its financials are improving. Analysts expect the company to swing to a profit of $1.02 per share this fiscal year from a loss of almost $14 a share last year. And next year, projections are for UAL to post $6 in earnings per share for fiscal 2023.
There is risk here, as with the other airline stocks on this list, but there's also potential according to Wall Street insiders.
Jeff Reeves writes about equity markets and exchange-traded funds for Kiplinger. A veteran journalist with extensive capital markets experience, Jeff has written about Wall Street and investing since 2008. His work has appeared in numerous respected finance outlets, including CNBC, the Fox Business Network, the Wall Street Journal digital network, USA Today and CNN Money.
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