Airlines are an important part of the economy, but investing in their stocks has often failed. Airline stock prices fluctuate with business cycles, and past economic downturns have led to airline bankruptcies and bankruptcies.
However, industry consolidation has created a small number of competitors that use technology more effectively to manage schedules and set fares. Currently, four airlines control approximately 80% of the U.S. market.

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Airlines in the post-pandemic world
The coronavirus disease (COVID-19) pandemic caused airline revenues and stock prices to temporarily decline. Vaccines have allowed people to travel again, but the recovery has been fragile as new variants disrupted normal travel patterns.
Travel demand returned with a bang in 2022, leading to a summer of crowded airports and lost baggage. Demand growth has remained steady so far in 2023. As a result, airline profits are soaring, with some major carriers returning to profitability for the first time since the pandemic.
The pandemic has caused changes in travel demand patterns that, if sustained, should provide airlines with tailwinds for years to come. The shift to “work from home” and “work from anywhere” has created year-round demand for leisure travel, which has historically been highly cyclical with demand surging in the summer and stagnating in January. We are contributing to leveling the industry.
But new headwinds complicate things. Due to the Ukraine conflict and resulting high oil prices, much of the additional revenue is not making it to the bottom line, as fuel costs account for up to 30% of airlines' total costs. Airlines are also having trouble finding pilots, which is one of the reasons for headlines for summer cancellations.
U.S. airlines weathered the pandemic without major bankruptcies, and major carriers appear healthy enough to continue operating amid economic turmoil.
Still, it looks like it will take some time for the situation to normalize. The International Air Transport Association, the airline industry trade group, predicted that a full recovery may not occur until 2024, a prediction made before Russia's invasion of Ukraine.
Best airline stocks to buy now
Airlines |
ticker |
Market capitalization |
---|---|---|
delta airlines |
(NYSE:DAL) |
$22.23 billion |
southwest airlines |
(New York Stock Exchange: Love) |
$18.82 billion |
united airlines holdings |
(NASDAQ:UAL) |
$13.86 billion |
alaska airline group |
(NYSE:ALK) |
$5.42 billion |
Frontier Group Holdings |
(NASDAQ:ULCC) |
$2.08 billion |
U.S. airlines are divided into three categories:
- full service companyoperates around the world, offers a variety of cabin classes, and serves many markets.
- discounterhas few extra services and flies to few cities.
- regional airlinesprovides small jet aircraft services to the secondary market under its full-service partner brands.
There are approximately 12 publicly traded airlines in the United States. Here are some particularly recommended airlines.
1. Delta Airlines
The airline has been the driving force behind many of the industry's recent innovations. Atlanta-based Delta Air Lines began a series of consolidations that helped stabilize its business when it acquired Northwest Airlines in 2008 and revamped its pricing to better compete with discounters. Delta Air Lines also acquired a refinery to secure its jet fuel supply.
Most recently, Delta Air Lines took the lead in signing new labor agreements with the most important pilot groups. Where Delta goes, its rivals follow.
Delta's stable balance sheet and relatively positive labor relations post-pandemic make it a good choice to be one of the first international carriers to make a full recovery.
2.southwest airlines
Originally a discount company, Southwest Airlines is now one of the giants of the industry, no longer a maverick upstart. The Dallas-based airline is the only major airline to never go to bankruptcy court, and its streamlined operations have allowed it to remain profitable even as competitors struggle. be.
Southwest's pristine reputation has taken some hits since the pandemic. The airline suffered a high-profile schedule breakdown during the 2022 holiday season, and problems with its aging IT infrastructure led to another company-wide grounding in April.
But even if this isn't the old Southwest, the airline remains a generally reliable carrier and cost leader. It also has one of the best balance sheets in the industry, making it popular with investors for its staying power.
3. United Airlines Holdings
United Airlines has large operations serving Silicon Valley and the US energy sector, and an extensive network across Asia. The highly cyclical nature of these markets means that United's performance can rise and fall depending on technology and energy.
Chicago-based United Airlines has historically been the envy of the industry due to its large presence in major business markets and ability to provide unparalleled connectivity to business travelers. That network remains a key advantage for United, although the pandemic has diminished that advantage.
Importantly for investors, this company, which has been underperforming for many years, now has a stable and progressive management team that has done a good job of modernizing its long-dormant business. It means that there is.
4. Alaska Airlines Group
Alaska, as its name suggests, has been primarily focused on the Pacific Northwest of the United States for most of its history. But thanks to its acquisition of Virgin America in 2016, the company is now a major player from the West Coast to Southern California and has transcontinental operations.
Alaska has historically partnered with larger rivals to give customers access to the entire planet, while partners have provided greater service to smaller markets in the Pacific Northwest. These days, Alaska is most closely associated with: american airlines group (AAL 0.39%).
Over the years, Alaska has built a reputation as a solid carrier that outperforms its larger competitors. Although the company experienced some problems during its integration with Virgin America, it regained its altitude and was once again ranked as one of the most interesting investments in the sector.
5. Frontier Group Holdings
Frontier is one of a new breed of discount airlines that offers little more than a seat for the price of a ticket, charging small extras for things like drinks and carry-on baggage that other airlines offer for free.
This business model is the subject of many complaints and jokes, but price-sensitive consumers pack on planes. Its low cost structure also allows Frontier to compete on price with nearly every other carrier in the market.
Frontier is unlikely to join the ranks of global carriers like Delta Air Lines or United Airlines, and may never enjoy the scale of Southwest Airlines. But the company's niche product offering has made it the fastest-growing airline in the U.S., and it has a large number of jets on order for future expansion.
There are also airline ETFs.
If you're bullish on airlines but don't want to pick individual stocks, low-risk investments such as exchange-traded funds (ETFs) also cover the aviation sector.of US Global Jets ETF (jets -0.76%) focuses specifically on airlines, but iShares Transportation average ETF (IYT -0.95%) and that SPDR S&P Transportation ETF (XTN -1.46%) each allocates more than 25% of their holdings to airlines.
Air travel industry trends
The competitive environment among airlines is constantly changing. In 2021, two airlines – sun country airlines (SNCY -0.8%) and Frontier — used the public markets to finance expansion through an initial public offering.And last year, with Frontier jet blue airlines (JBLU -4.45%) is engaged in a bidding war. spirit airlines (keep 0.0%) We are working to create a new discount powerhouse.
Although JetBlue won the bidding war, the deal with Spirit faces challenges in gaining regulatory approval. It is not yet clear whether other airlines will follow the same path towards further consolidation. However, investors should expect further changes and the possibility of new competition in the coming years.
Recessions tend to be good times for new airlines to emerge and discount companies to grow, as flights tend to be cheaper.
Understand the aviation industry
Investors should understand some airline-specific terminology before purchasing stocks. Here's what you need to know:
Razum
RASM stands for revenue per available seat mile and is a measure of an airline's profitability. Corporate seat miles are the number of seats offered by an airline multiplied by the number of miles flown on that airline's jets. Revenue divided by seat miles equals the airline's RASM.
RASM is important because all flights have different fares and cost structures depending on many variables, such as distance flown and aircraft type. Just looking at total revenue and total expenses doesn't give you the whole picture.
An airline's RASM indicates whether the airline is selling tickets at arbitrary prices just to fill seats, or whether it has enough pricing power to sell seats for a profit. Helpful. Two different airlines may both be able to fly full planes, but as an investor, you want to focus on the airline that can do so at a high profit margin.
CASM
CASM stands for cost per available seat mile and is the airline's total cost divided by the number of available seats multiplied by the miles flown. RASM measures expenses in the same way that it measures sales.
Load factor
Load factor measures how well an airline fills its seats. For an individual flight, it's as simple as saying 60 out of 79 seats were full. However, that simple definition doesn't tell the whole story because major airlines have different flight times. Airlines calculate system-wide load factors by measuring how many seats are filled per mile flown. Major airlines provide this information during earnings calls and conference calls, but investors can calculate it at home by dividing revenue passenger miles (as mentioned above, the number of passengers on a flight times the number of miles flown) by the number of empty seats. miles.
Related investment topics
Are airline stocks right for you?
While the airline industry remains cyclical, the pandemic has proven that airlines are resilient to tough business conditions without going bankrupt.
If you are bullish on the long-term demand for travel, buying well-run airlines is a great way to put your investment dollars to good use.
Lou Whiteman has a position at Delta Airlines. The Motley Fool recommends Alaska Airlines Group, Delta Air Lines, and Southwest Airlines. The Motley Fool has a disclosure policy.