In this article, we will take a look at the 11 best airline stocks to invest in right now. To see more such companies, go directly to 5 Best Airline Stocks to Buy Now.
Air travel industry is in recovery mode with the easing of COVID-19 restrictions and the opening of the global economy. Unlike in the past three years, there has been a shift with most travelers opting for international travel, something that is helping airlines draw in big revenues from air travel fees and ticket sales.
The pandemic brought many challenges as the travel industry came to a standstill. Many airlines plunged into debt and lost a combined $200 billion between 2020 and 2022. It’s only now that most are slowly returning to profitability as they salivate to serve travel-deprived consumers with the easing of travel restrictions worldwide.
Major airlines led by United Airlines, Delta, and American Airlines continue to rake in huge profits owing to passengers’ willingness to pay higher fares supported by increasing travel demand. The airlines have also benefited from a shortage of airplanes and pilots, allowing them to charge a premium on travel fees without much resentment. Nevertheless, the increase in consumer spending on travel and entertainment remains one of the biggest catalysts for the airline industry.
The average cost of flying in the US has increased significantly to historic highs in the industry, bouncing back from the pandemic turmoil. The consumer price index for airline tickets is already up by more than 20% for the year, representing the largest jump since the Federal Reserve started racking the index.
Executives from the major airlines expect air travel fares to continue increasing in response to the high demand amid a shortage of planes. Similarly, the executive expects demand for air travel to surge despite the ever-growing risk of recession.
Despite the high cost of traveling amid the high inflation and interest rate environment, people continue to make travel arrangements. A Bank of America study showed that spending at airlines and travel agencies is already by more than 60% for the year as more people continue to make travel arrangements.
Nearly two out of every adults plan to take a vacation before year-end, with most shrugging off the rising prices and interest rates.
“This year, as prices and interest rates continue to push higher, we’re seeing more signals that vacationers are adapting their plans. Many are still going somewhere, but they’re being more thoughtful about how they’re spending,” said Ted Rossman Bankrate, senior industry analyst
The surge in air travel fares has to do with many carriers needing to improve in rebuilding their pre-pandemic flight schedules. A global shortage of aircraft has seen a reduction in aircraft in the tarmacs needed to address the influx of air travel demand. A restricted supply of seats amid high demand is expected to support prices that should allow airlines to continue generating more revenues.
On the other hand, the biggest risk to the airline industry is the rising cost of jet fuel. Energy prices have increased significantly in recent months, with crude oil rallying to ten-month highs of $90 a barrel. The increasing energy costs are likely to trigger higher inflation, something that could affect consumer purchasing power, prompting most of them to shelve their travel plans.
Nevertheless, the increase in international travel costs due to higher jet fuel could take a toll on the sector that is still in recovery mode from the COVID-19 triggered slowdown. According to Peter McNally of Third Bridge Global Sector lead for Industrials Materials and Energy, airplane capacity issues could become rampant as travel costs soar due to higher jet fuel costs.
Some airlines have already started cutting guidance due to the higher fuel costs. For instance, American Airlines expects its Q3 earnings to range between $0.20 and $0.30 a share below the previous guidance of between $0.85 and $0.95. Amid the cuts, most airlines are expected to pass the elevated costs due to high fuel costs, labor issues, and strong dollar to customers owing to the high demand in the market.
Waning travel demand is another issue that could batter the sector heading into year-end. Southwest Airlines has already embarked on aggressive marketing campaigns as it looks to get more people booking for its flights.
The airline offers triple Companion Pass qualifying points per flight for people looking through its business channels. The easier way to earn the points signifies the ever-growing need to fill seats not just this year but into 2024.
11 Best Airline Stocks to Invest In Right Now
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Despite the concerns, the air travel industry remains on course to finish the year on a high as airlines continue charging premium fares. As the air travel industry continues to rebound from the pandemic slowdown and airlines report record revenues and profits, tremendous investment opportunities continue cropping up, with most airline stocks trading at highly discounted levels.
The U.S. Global Jets ETF (JETS), which offers exposure to passenger airlines, aircraft manufacturers, and airport operators, is flat for the year, signaling how investors have shunned the sector despite the solid fundamentals.
Morningstar expects the operating environment in the US airline sector to continue improving and return to more normalized competitive dynamics once supply constraints moderate. Declining fuel costs in a consolidated industry and robust demand for air travel should offer the much-needed support.
Our Methodology
While relentless travel demand has sent bookings in major US carriers soaring and leading to bumper earnings, the same is yet to reflect in stock valuations. Most stocks appear to be trading at great discounts, therefore offering a high-risk reward opportunity. We have combined the best airline stocks to invest in, as listed in the U.S. Global Jets ETF (JETS), based on their underlying fundamentals. We looked at the data of 910 hedge funds that we track at Insider Monkey as of the end of Q2 2023 and ranked the airline stocks that they invested in. The more hedge funds invested in a stock, the higher its rank.
Southwest Airlines Co. (NYSE:LUV) is a passenger airline company that offers scheduled flights in the U.S. and nearby regions. It had 770 Boeing 737 planes and flew to 121 places in 42 states, D.C., Puerto Rico, and ten other countries, such as Mexico, Jamaica, Aruba, Cuba, and more, by the end of 2022.
A total of 31 hedge funds in Insider Monkey's database had stakes in Southwest Airlines Co. (NYSE:LUV) as of the end of the second quarter of 2023. The biggest stakeholder of the company is Oldfield Partners of Richard Oldfield, with a $99.61 million stake.
Citi analyst Stephen Trent cut Southwest Airlines Co. (NYSE:LUV)’s price target to $32.75 from $36 on September 12, citing labor cost uncertainty. The firm maintained a ‘Neutra’l rating and was more bearish than others.
Copa Holdings, S.A. (NYSE:CPA) is an airline company that flies to 78 places in the Americas and the Caribbean from Panama City. It has 97 planes, mostly Boeing 737s, including 20 737-MAX. On September 18, 2023, JPMorgan analyst Guilherme Mendes maintained an ‘Overweight’ rating on Copa Holdings, S.A. (NYSE:CPA) and increased his price target from $160 to $170.
In the second quarter of 2023, 34 hedge funds had a stake in Copa Holdings, S.A. (NYSE:CPA) compared to 33 in the previous quarter. In Q2, the company’s biggest hedge fund holder, Citadel Investment Group owned 899,199 shares of the company worth $99.43 million.
Tripadvisor, Inc. (NASDAQ:TRIP) is an online travel company that provides travel guidance products and services worldwide. It has three segments: Tripadvisor Core, Viator, and TheFork. The Tripadvisor Core segment lets travelers share ratings and reviews for various travel-related items. The Viator segment offers online booking for tours and activities. The TheFork segment operates an online restaurant reservation platform.
As of Q2 2023, 33 out of the 910 hedge funds part of Insider Monkey’s database had bought a stake in Tripadvisor, Inc. (NASDAQ:TRIP). Out of these, the firm’s largest investor is Paul Reeder And Edward Shapiro’s PAR Capital Management with an $89.05 million stake.
On September 17, 2023, Truist Financial reduced Tripadvisor, Inc. (NASDAQ:TRIP)’s price target from $18 to $17, indicating a potential 7.80% increase from the previous close.
Here is what Rowan Street Capital said about Tripadvisor, Inc. (NASDAQ:TRIP) in its second quarter 2023 investor letter:
“Now, the bottom 3 performers from all the companies that we’d sold were Docusign (DOCU) -76%, Tripadvisor, Inc. (NASDAQ:TRIP) -59% and Under Armour (UA) -57%. These represent the losses we would have incurred had we held on to these positions until now. We must note that all 3 of these were sold for purely fundamental reasons and we ended up being correct on all of them.”
American Airlines Group Inc. (NASDAQ:AAL) is a network air carrier that flies passengers and cargo through its hubs in nine U.S. cities and partner gateways in six other countries. It had 925 mainline planes at the end of 2022.
After sifting through 910 hedge funds for their June quarter of 2023 investments, Insider Monkey discovered that 35 had bought and owned the firm’s shares. D. E. Shaw’s D E Shaw is American Airlines Group Inc. (NASDAQ:AAL)’s largest shareholder since it owns a stake worth $219.61 million.
On September 18, 2023, Citigroup reduced American Airlines Group Inc. (NASDAQ:AAL)’s price target from $16.60 to $15.25 while maintaining a ‘Neutral’ rating.
United Airlines Holdings Inc. (NYSE:UAL) is an airline company that flies people and cargo in various regions of the world. It has mainline and regional fleets. It also provides catering, ground handling, training, and maintenance services.
As of the end of the second quarter of 2023, 40 hedge funds tracked by Insider Monkey had stakes in United Airlines Holdings Inc. (NYSE:UAL). The biggest stakeholder of United Airlines Holdings Inc. (NYSE:UAL) was Ken Griffin’s Citadel Investment Group which owns a $272.45 million stake in the company.
On August 7, 2023, Redburn analyst James Goodall upgraded United Airlines Holdings Inc. (NYSE:UAL) from 'Neutral' to Buy' and set a price objective of $80.
Trip.com Group Limited (NASDAQ:TCOM) is a travel service provider that offers various travel-related services in China and abroad. It helps customers book accommodations, transportation, tours, and corporate travel.
On September 7, TD Cowen revised its price target on Trip.com Group Limited (NASDAQ:TCOM) from $44 to $45 and retained an ‘Outperform’ rating.
As of the end of the second quarter of 2023, 44 hedge funds tracked by Insider Monkey have stakes in Trip.com Group Limited (NASDAQ:TCOM). The biggest stakeholder of Trip.com Group Limited (NASDAQ:TCOM) is Richard S. Pzena’s Pzena Investment Management which owns a $230.07 million stake in the company.
In its fourth-quarter 2022 investor letter, Artisan Partners made the following comments about Trip.com Group Limited (NASDAQ:TCOM):
“Trip.com Group Limited (NASDAQ:TCOM), a Chinese online travel agency, was the second-largest contributor to return in 2022. Trip.com is the dominant supplier of online travel reservations and is expected to benefit from China’s loosening COVID-19 restrictions on both domestic and international travel. Management of Trip.com has wisely spent the COVID-19 lockdown period reinforcing and improving the company’s market position and reducing unnecessary costs. We expect earnings to boom over the next year as travel picks up. Other investors appeared to agree, pushing the share price up 42% in 2022.”
