The US TSA publishes throughput figures for its airports. The numbers are close to recovering to pre-pandemic in 2019 but still have a little way to go. Reduced business travel and the absence of international travel from China means there is still some headroom to travel growth. For the investor looking to take a chance on the industry and get in before the potential leap of passenger numbers above those of 2019, Asktraders has come up with the below shortlist of the best airline stocks to buy right now.
THE AIRLINE STOCK MARKET
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.
BEST AIRLINE STOCKS TO BUY RIGHT NOW
- Southwest Airlines Co (NYSE:LUV)
- Delta Airlines (NYSE:DAL)
- Ryanair Holdings PLC (NASDAQ:RYAAY)
- United Airlines Holdings (NASDAQ:UAL)
1. 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.
LUV 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.
Southwest Airlines- Weekly Price Chart – 2019 – 2022
Source: eToro
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.
2. 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.
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.
As of the second quarter of 2022, DAL has returned to profitability and the annualised revenues are above those of 2019.
Delta Airlines- Weekly Price Chart – 2019 – 2022
Source: eToro
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.
3. 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.
The operational flexibility and strong return of paying passengers to its unique portfolio of routes has meant RYAAY share price is only marginally lower than what it was to start 2020.
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.
Ryanair Holdings- Weekly Price Chart – 2019 – 2022
Source: eToro
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 sees Ryanair in a buoyant position to recover from its COVID lows.
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.
UAL, as one of the more debt leveraged operations, is a riskier proposition for the prospective investor but a market capitalisation of less than $13bn. After the new debt profile trailing 12 month (TTM) interest expense of $1.6bn and theoretical return to 2019 net incomes of $3bn, it is trading at less than 10 times earnings.
Indeed, UAL provides rare value in a stock market that often trades above earnings multiples of 20.
United Airlines- Weekly Price Chart – 2019 – 2022
Source: eToro
In June 2021, United Airlines announced its status as the first US airline to sign an agreement for new supersonic aircraft. Capable of reaching Mach 1.7, net carbon zero and connecting from Newark to London in 3.5 hours, UAL could be an interesting proposition for traders in the lead-up to the introduction of its supersonic flights in 2029.
WHY INVEST IN AIRLINE COMPANIES?
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 AIRLINE COMPANIES
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, there is always the risk that we return to a similar scenario of 2020 on any new COVID variant and this will likely be a death blow to many airline operators.
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.
HOW TO START TRADING AIRLINE STOCKS ONLINE
1. Research Airline Stocks
Whenever you make an investment, it is important that you do your own research and are comfortable with your strategy. You will find a wealth of information on AskTraders that will aid you in your decision making process. Researching the market, analysing reported financials and quantifying your outlook for the sector and the company you are investing in are all good starting places before deciding on which airline stock to buy.
2. Find a Broker
The next step is to find a broker to use. There are many brokers out there. Consider how often you would like to invest and factor the fees into the ease of use. Then consider if your due diligence is more weighted to charts or to reported data and will your broker be able to provide you all the tools you need to execute as best you can?
3. Open & Fund an Account
Modern and reputable broking platforms will require Know-Your-Customer (KYC) financial and personal information from you before they sign you on to their customer database. You should be prepared to disclose sensitive personal and financial details before commencing trading. This is very standard and protects both you and the broker. Depending on the broker, there are many funding methods, before you hand over your personal information check that the broker accepts your preferred funding method.
4. Set Order Types
Understanding order types is critical to completing the stock. A well-executed strategy plays a major part in a profitable outcome. First, understand your own financial situation and trading goals. Be sure to read up on the different types of orders such as limits, stop-loss and many others. Partner your objectives with the executing tools at hand in order to have the best outcome. Different order types, when used effectively, can aid you in mitigating risk and reaching your financial objectives.
5. Select & Buy Airline Stocks
After you feel comfortable with the above, it’s time to go out there and execute. Remember, it is a process, take your time. Learn from the experts made available to you on Asktraders.com and reach out to your broker for support whenever you need to.
