Chicago, IL – April 2, 2025 – Today, Zacks Equity Research discusses SkyWest SKYW, Frontier Group ULCC and Allegiant Travel Co. ALGT.
Link: https://www.zacks.com/commentary/2437893/3-airline-stocks-to-bet-on-currently-amid-falling-oil-price
The Zacks Transportation - Airline industry is being aided by declining fuel costs. This is because expenses on fuel represent a key input cost for airlines. To combat the tariff-induced decline in air travel demand, airlines are cutting capacity to drive growth. This shareholder-friendly approach of airlines bodes well.
As a result, we believe that investors interested in the industry would do well to bet on stocks like SkyWest, Frontier Group and Allegiant Travel Co. for higher returns.
The Zacks Airline industry players are engaged in transporting passengers and cargo to various destinations globally. Most operators maintain a fleet of multiple mainline jets in addition to several regional planes. Their operations are aided by their regional airline subsidiaries and third-party regional carriers.
Additionally, industry players utilize their respective cargo divisions to offer a wide range of freight and mail services. The players invest substantially to upgrade technology. The industry, apart from comprising legacy carriers, includes low-cost players. The well-being of companies in this group is linked to the health of the overall economy. For example, the aviation space was one of the worst-hit corners during the pandemic, with passenger revenues taking a beating. However, air travel demand has improved from the pandemic lows.
Low Fuel Costs: The southward movement of oil prices bodes well for the bottom-line growth of industry participants. This is because fuel expenses are a significant input cost for the aviation space. Crude oil is struggling in 2025, with prices sliding to multi-month lows. Tariff concerns, weakening consumer confidence and production increase by OPEC+ have all resulted in this downward pressure.
Strong Financial Returns for Shareholders: With economic activities gaining pace from the pandemic lows, more and more companies are allocating their increasing cash pile by way of dividends and buybacks to pacify long-suffering shareholders. This underlines their financial strength and business confidence.
Airlines Trim Capacity to Combat Weak Demand: Due to the tariff-induced economic uncertainties and the resultant reduction in consumer and corporate confidence, there has been a slowdown in domestic air travel demand. These headwinds have caused many airlines to cut their first-quarter earnings per share forecasts. With demand slowing, airlines have started trimming flights to protect margins and avoid lowering fares. For example, Allegiant now expects capacity for 2025 to grow 13% year over year from the 17% estimated previously.
Uptick in Labor Costs: The increase in expenses on the labor front represents another challenge for airlines. With U.S. airlines grappling with labor shortage in the post-COVID-19 high-demand scenario, the bargaining power of various labor groups has naturally increased. As a result, we have seen pay-hike deals being inked in the space. This is resulting in a spike in labor costs, limiting bottom-line growth in turn.
The Zacks Airline industry is a 29-stock group within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #50, which places it in the top 20% of 245 Zacks industries.
The group's Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry's positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate.
Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group's earnings growth potential. The industry's earnings estimate for 2025 has improved by 5% since September 2024.
Before we present a few stocks that you may want to add to your portfolio, let's look at the industry's recent stock-market performance and its valuation picture.
Over the past year, the Zacks Transportation - Airline industry has gained 23.7% compared with the S&P 500 composite's rise of 7.7%. The broader sector has declined 12.1% in the said time frame.
The price/sales (P/S) ratio is often used to value airline stocks. The industry currently has a forward 12-month P/S of 1.16X compared with the S&P 500's 4.81X. It is also below the sector's forward-12-month P/S of 1.68X.
Over the past five years, the industry has traded as high as 1.28X, as low as 0.42X and at the median of 0.7X.
SkyWest is based in St. George, UT. It operates as a regional airline in the United States through its subsidiary SkyWest Airlines. It offers high-quality regional service to airports located primarily in the Midwestern and Western United States as well as Mexico and Canada.
Low fuel costs are aiding the bottom line. The stock has surged 28% in the past year but declined 9% in the past month. Over the past 60 days, the Zacks Consensus Estimate for 2025 earnings has increased 7.6%. SkyWest currently sports a Zacks Rank #1 (Strong Buy).
You can see the complete list of today's Zacks #1 Rank stocks here
Frontier Group is based in Denver, CO. The company provides low-fare passenger airline services to leisure travelers in the United States and Latin America. Over the past 60 days, the Zacks Consensus Estimate for ULCC's 2025 earnings has increased 42.2%.
Recently, Frontier Airlines, the wholly-owned subsidiary of Frontier Group, decided to offer free checked bags for summer travel. For ULCC flights departing between May 28 and Aug. 18, passengers can get a free checked bag. The booking has to be made with promo code FREEBAG. ULCC currently sports a Zacks Rank #1.
Allegiant, based in Las Vegas, NV, currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for current-year earnings has been revised 21.8% upward over the past 60 days.
Allegiant is focusing on adding new routes to broaden its network. To this end, the carrier announced late last year the addition of 44 new nonstop routes to its network. Due to the softness in leisure air travel demand, ALGT's management expects total unit revenues in the first quarter of 2025 to decline just over 7% from the first-quarter 2024 actuals.
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Allegiant Travel Company (ALGT) : Free Stock Analysis Report
SkyWest, Inc. (SKYW) : Free Stock Analysis Report
Frontier Group Holdings, Inc. (ULCC) : Free Stock Analysis Report
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