Airline stocks went into a free fall recently after the collapse of Silicon Valley Bank and the subsequent jitters in the banking sector that pushed possibility of recession hitting the global economy in 2023 further close to reality. However, a shortage of airplanes and pilots, a rapid increase in consumer spending on travel and entertainment are amongst the biggest growth catalysts for the airline industry. Analysts believe the industry is not facing any short-term risks, and even if recession hits and consumers start to delay their travel plans, some airline stocks are offering attractive long-term buying opportunity.
Despite recession fears and overall turmoil in the broader financial markets, airlines continue to rake in huge profits from an increasing travel demand that is defying analyst expectations. Executives from major airline companies recently presented at JPMorgan Chase & Co. industrial conference. Overall the mood among the airline companies was positive as they expect fares to continue their upward trajectory amid an increasing demand. Executives from three major airlines – American Airlines Group Inc. (NASDAQ:AAL), United Airlines Holdings Inc. (NYSE:UAL), and Delta Air Lines, Inc. (NYSE:DLA) – had a consensus opinion that the demand in the industry is going nowhere but upwards. According to a Bloomberg report, United’s Chief Commercial Officer Andrew Nocella said he expects the “prices are only going higher and the prices are already very high.”
Airline companies in Europe are equally optimistic. Recently, Deutsche Lufthansa said it expects to report “significant improvement” on the €1.5 billion adjusted earnings before interest and taxes result it reported for 2022. Air France-KLM and British Airways parent IAG SA also recently said that they are expecting to reach pre-pandemic levels in 2023.
Airlines in the US and Europe are enjoying rising air fares in the midst of rising travel demand for spring and summer bookings. According to a CNBC report, travel app Hopper said domestic airfare was average at around $264 for a round trip for March and April in the US, a 20% rise from the previous year. Most importantly, this average airfare was 5% above the pre-pandemic levels.
Best Airline Stocks To Buy According to Hedge Funds
Photo by Toa heftiba on Unsplash American Airlines in its January earnings call said the following which shows the optimism in the industry based on solid demand:
... Demand remains strong and our revenue performance is in line with our expectations following our strong holiday performance.
Our Methodology
For this article, we scanned Insider Monkey’s database of 943 hedge funds tracked as of the end of the fourth quarter of 2022 and picked 12 airline stocks with the highest number of hedge funds. This list of the best airline stocks to buy according to hedge funds is ranked in ascending order of the number of hedge fund investors.
Best Airline Stocks To Buy According to Hedge Funds
Allegiant Travel Company (NASDAQ:ALGT) is a low-cost airline. At the end of the fourth quarter of 2022, 18 hedge funds reported owning stakes in Allegiant Travel Company (NASDAQ:ALGT). The net worth of these stakes was $77 million.
Recently, Allegiant Travel Company (NASDAQ:ALGT) posted preliminary traffic data for February. Revenue passenger miles jumped 12.2% on a YoY basis to reach 1.18 million. Passenger traffic in scheduled services grew 13% year over year to 1.24 million.
Diamond Hill Capital made the following comment about Allegiant Travel Company (NASDAQ:ALGT) in its Q4 2022 investor letter:
“Other bottom contributors included Allegiant Travel Company (NASDAQ:ALGT), Concrete Pumping Holdings and WNS Holdings. Lowcost airline Allegiant Travel faces a challenging industry backdrop, including higher fuel costs and ongoing concerns about the potential for a recession.”
Hawaiian Holdings, Inc. (NASDAQ:HA) is behind Hawaiian Airlines, Inc., which provides services on North America routes between the State of Hawaii and Long Beach, Los Angeles, Oakland, Sacramento, San Diego and other important states and cities.
In January, Hawaiian Holdings, Inc. (NASDAQ:HA) posted its Q4 results. Adjusted EPS in the period came in at -$0.49, beating estimates by $0.21. Revenue in the period increased by 3.2% to $731.04 million, missing estimates by $2.02 million.
As of the end of the fourth quarter of 2022, 19 hedge funds had stakes in Hawaiian Holdings, Inc. (NASDAQ:HA).
10. Air Transport Services Group, Inc. (NASDAQ:ATSG)
Number of Hedge Fund Holders: 20
Ohio-based Air Transport Services Group, Inc. (NASDAQ:ATSG) provides air cargo, transportation and related services to domestic and foreign air carriers. While it’s not a pure-play airline stock, it’s an important player in the industry with decent hedge fund sentiment. Insider Monkey’s database shows 20 hedge funds had stakes in Air Transport Services Group, Inc. (NASDAQ:ATSG) as of the end of the fourth quarter of 2022. The total value of these hedge funds’ stakes was $77 million.
In January, Truist analyst Michael Ciarmoli increased his price target on Air Transport Services Group, Inc. (NASDAQ:ATSG) to $29 from $28 and kept a Hold rating on the stock.
Ireland-based low-cost airliner Ryanair Holdings plc (NASDAQ:RYAAY) is also among the best airline stocks to buy according to hedge funds. Insider Monkey’s database of 943 hedge funds shows that 21 funds had stakes in Ryanair Holdings plc (NASDAQ:RYAAY) as of the end of the fourth quarter of 2022. The total value of these stakes was $426 million. The biggest stakeholder of Ryanair Holdings plc (NASDAQ:RYAAY) among these hedge funds was Natixis Global Asset Management’s Harris Associates which had an $814 million stake in Ryanair Holdings plc (NASDAQ:RYAAY).
Recently, Erste Group upgraded Ryanair Holdings plc (NASDAQ:RYAAY) to Buy from Hold. The firm highlighted that Ryanair Holdings plc (NASDAQ:RYAAY)’s revenue increased by about 170% on a YoY basis to €4.8 billion in fiscal 2022 due to strong post-COVID demand growth and higher fares.
Alaska Air Group, Inc. (NYSE:ALK) owns Alaska Airlines and Horizon Air. Alaska Air Group, Inc. (NYSE:ALK) ranks 8th in our list of the best airline stocks to buy according to hedge funds.
Recently, Barclays gave bullish comments on Alaska Air Group, Inc. (NYSE:ALK) and called it a safer stock pick in the airline sector due to its strong balance sheet and operational performance. Barclays preferred Alaska Air Group, Inc. (NYSE:ALK) over major names like Southwest.
Barclays said Alaska Air Group, Inc. (NYSE:ALK) has a low net balance sheet leverage and is currently generating the “highest operating profitability of the major airlines since 2022.”
Barclays upgraded Alaska Air Group, Inc. (NYSE:ALK) stock to Overweight from Equal Weight and assigned a $62 price target to the stock, up from $54.
Insider Monkey’s database shows that 22 hedge funds tracked by Insider Monkey had stakes in Alaska Air Group, Inc. (NYSE:ALK) as of the end of the fourth quarter of 2022. The total worth of these hedge funds’ stakes was $304 million. The biggest stakeholder of Alaska Air Group, Inc. (NYSE:ALK) was Paul Reeder and Edward Shapiro’s PAR Capital Management which had a $64.4 million stake in the company.
While JetBlue Airways Corporation (NASDAQ:JBLU) and Spirit are expected to strongly contest the concerns voiced by the Department of Justice over their merger plans, the stock remains a top choice of hedge fund investors due to secular growth trends. Recently, JetBlue Airways Corporation (NASDAQ:JBLU) shares rose after the company gave a strong revenue guidance for the first quarter of 2023.
JetBlue Airways Corporation (NASDAQ:JBLU) expects its available seat miles to increase 8% to 9% as compared to 2022, up from its previous guidance of 5.5% and 8.5%. Revenue in the period is expected to increase 32% to 35%, better than the prior growth guidance of 28% to 32%.
Out of the 943 hedge funds in Insider Monkey’s database, 23 hedge funds had stakes in JetBlue Airways Corporation (NASDAQ:JBLU). The total value of these hedge funds’ stakes was $135 million. The biggest stakeholder of JetBlue Airways Corporation (NASDAQ:JBLU) during this period was John Overdeck and David Siegel’s Two Sigma Advisors which had a $20.4 million stake in the company.
