Airline stocks have rebounded from some of the previous years’ trauma, but remain far from setting pulses racing in most cases. International airline companies were one of the most affected by the pandemic restrictions on international and domestic movement. Nearly all airline companies suffered material losses in 2020 but have since bounced back in a big way.
The US TSA publishes throughput figures for its airports. The numbers have now surpassed pre-pandemic in 2019 but it has taken these businesses time to recover, and the stock prices by and large have been in a range.
Why Invest In Airlines?
Airline companies are a bellwether for the economy. When the consumer has excess money in their pocket to spend on travel, and businesses are looking to expand and sales personnel are travelling, airlines will do well.
As we enter a period of record low unemployment in the United States, airline companies are finding the business top line revenues quickly surpass those of pre-pandemic.
For the investor willing to take a bet on airline companies able to handle their new-found debt pile while increasing their top line revenue, and at the same time effectively managing soaring fuel and wage costs there are value propositions.
The industry is not without risk and every investor should do their appropriate due diligence but for the savvy investor, there are opportunities.
What To Know Before Investing In The Sector
Pre-pandemic airline stocks were flying high from record domestic and international travel as high levels of employment and expanding enterprise incentivised travel both near and far.
After the mega consolidations in the US airline industry in the early 2000s, and after putting the Global Financial Crisis behind them, US and international airlines had some of their best financial years on record in 2019, returning large profits and looking to the future.
The pandemic presented an industry-wide existential threat to operation and only by raising 100s of billions of dollars through debt issuance and equity dilution were the current crop of airlines able to survive. It speaks volumes of the robustness of capital markets that they were indeed able to do so at all.
There are considerable risks when investing in airline companies. Airline companies do have seasoned and effective fuel cost hedging operations but they can only cover so far in advance. If fuel prices stay higher for longer, margins will be vulnerable.
The indiscriminate nature of the pandemic meant that there were no operators immune from its effects, and there is always a risk of a similar scenario, however small.
With unemployment being so low, the tight labour market will mean rising costs for personnel for all airlines into the future and this could hurt future net operating margins and make any investment less successful.
Asktraders has a wealth of quantitative and qualitative tools at your disposal and you should always do your due diligence before making any investment.
Top Airline Stocks To Watch
Here you can find 4 of the top airline stocks worth keeping tabs on. The time may not be right for all of these right now, but these names will likely be on radars for many a year.
1. Ryanair Holdings PLC (NASDAQ:RYAAY)
RYAAY is the US listing for the Irish carrier Ryanair. RYAAY was able to very successfully navigate the pandemic with only a small addition to its current debt profile relative to its peers. With 5 year returns of almost 50%, the stock has held up well even considering the pandemic induced dip.
The operational flexibility and strong return of paying passengers to its unique portfolio of routes has meant RYAAY share price is one of few airlines to see longer term stock price appreciation.
In August 2022, Ryanair boss Michael O’Leary stated that the era of the €10 plane ticket was seemingly over. Fares for the airline are intended to rise to around €50 over the ensuing five years.
While O’Leary recognises the impact of rising fuel costs and elevated utility bills, nevertheless he still anticipates sustained demand for frequent flying. Alongside Ryanair, airlines such as Easyjet and Wizz Air has seen increased competition in a sector for the price-sensitive flyer.
Combined with its cancellation of only $0.3% of flights – compared to Easyjet’s 2.8% – this saw Ryanair in a buoyant position to recover from its COVID lows.
2. Southwest Airlines Co (NYSE:LUV)
LUV is the largest airline stock by market capitalisation in the world. LUV is unique in that it is one of the very few large fleet airlines that were not born out of a number of mergers of flight companies or as a national flag carrier. Despite recovering the pre-covid highs just 12 or so months later, the stock has since dipped. Over the past 5 years, prices have shed almost 50%.
The airline has for a long time been a darling of the wall and main street investors as their rigorous focus on costs, high level of customer appreciation, and growing customer base have consistently turned into market-beating profits under normal business conditions.
LUV carries more domestic passengers in the United States than any other carrier. Its solely economy model allows the company to focus on one market sector. A focussed business strategy facilitates lower marketing spend per customer and higher marketing return on investment (ROI).
Operating smaller airliners and a single model in the Boeing 737 provides economies of scale in the maintenance and piloting expenses.
LUV has, for the last several decades, been the gold standard for airline stock investors and a business model that many, including EasyJet and Ryanair have sought to replicate.
If you are looking to invest in Airline Stocks, an excellent starting point would be LUV.
3. Delta Airlines Inc (NYSE:DAL)
The second largest airline stock by market capitalisation is DAL. Delta has been in operation for almost 100 years. Having navigated through bankruptcy, shielded against acquisition M&A and, in turn, acquired by Northwestern Airlines, DAL has emerged as a preeminent player in the international airline carrier industry.
A 30% dip over 5 years has Delta outperforming Southwest, but this is far from the return many holders would be looking for.
Pivoting to cargo when passenger routes were down, mothballing some aircraft, plus increasing the debt burden by approximately $14bn, allowed DAL to survive the toughest airline industry year on record when it lost almost $13bn in 2020.
DAL will have to overcome higher fuel expenses, but the ability to transition more into cargo and return higher annualised revenues with still some headroom on passenger growth both internationally and domestically suggests that DAL might be worth your investment.
4. United Airlines Holdings (NASDAQ:UAL)
Large US carrier UAL navigated the pandemic by raising approximately $18bn of debt. As revenues return on an annualised basis above those of 2019, the airline will be looking to quickly pay down some of that debt pile and take advantage of improving market conditions.
A 5 year return of -48% puts United Arilines stock firmly in negative territory, but a YTD increase of 18% may have UAL turning a corner. One to watch.
