What are the best airline stocks?
With airline stock prices down and travel demand expected to climb, the recovery from the COVID-19 pandemic has created a unique opportunity for investors in airline stocks. Here are the best airline stocks to consider investing in today.
The airline industry is expected to drive $471.8 billion in revenue in 2021 alone. Naturally, when you have such a massive industry, you have opportunities to generate significant profitability in the stock market.
The COVID-19 pandemic threw a stick in the spokes of the airline industry. For several months in 2020, Americans were told to stay at home and avoid crowds, meaning consumers stopped taking vacations and cancelled business travel. Airlines suddenly found themselves with a pile of bills and a limited pool of customers willing to fly.
However, there’s a turning point taking place in both the pandemic and the travel industry. As of September 2021, more than 376 million doses of the coronavirus vaccination had been administered in the United States, leaving more than 177 million Americans fully vaccinated. Air travel is beginning to pick up steam as consumers who’ve craved a vacation finally feel safe taking one.
With airline stock prices down and travel demand expected to climb, a unique opportunity is being born for investors in airline stocks.
Best Airline Stocks to Buy in 2021
With 44 publicly traded airline companies to consider, where do you start? What are the best stocks in the sector at the moment? Here’s a list of the top airline stocks on the market today.
1. Southwest Airlines (NYSE: LUV)
Southwest Airlines is one of the best-known airlines in the U.S. According to Statista, the company is the second largest airline in the U.S. by domestic flight market share, controlling 17.4% of the U.S. domestic flight market. The company also serves 14 destinations in 10 different countries.
Southwest had one of the fastest recoveries in the stock market when vaccines started to make their way into arms last year. By April 2021, the stock was trading well above pre-pandemic levels.
More recently, the stock tapered back after announcing that even though it experienced profitability in July, overall profits in the third quarter would be difficult to come by. The company pointed to reduced demand resulting from another wave of the coronavirus as the reason for the expected lack of profitability in the quarter.
Nonetheless, this creates an opportunity. The recent spike in COVID-19 cases is likely to calm down quickly, as vaccines are now readily available and more than half of Americans are already fully vaccinated. While Southwest may not be profitable in the third quarter, the expectation is that demand will be back on the upswing soon enough.
There’s a strong argument that the stock is trading at a steep discount due to short-term fears, offering a real long-term opportunity.
Southwest Airlines’ Most Recent Financial Results
The company’s second quarter earnings report showed that it is making its recovery in a big way. During the quarter, the company generated revenue of more than $4 billion, representing nearly 300% year-over-year growth and beating analyst expectations.
Unfortunately, while earnings per share (EPS) more than doubled year-over-year, the figure missed analyst expectations by a wide margin. Nonetheless, the data showed Southwest’s profit margin on sales was up 8.68%, showing that the company is making moves in the right direction.
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2. American Airlines Group (NASDAQ: AAL)
American Airlines Group is the largest U.S. airline by market share, but it too has faced serious headwinds as a result of the coronavirus. The stock fell by more than 60% in mid-2020 as the virus led to shutdowns and canceled vacations.
Surprisingly to many, the company’s share price has yet to make it back to pre-pandemic highs. Nonetheless, this is more of an opportunity than a concern.
Sure, like most airlines, American is going through a tough time. It has had to deal with fewer customers for an extended period of time, and like with Southwest, many fear that the recent resurgence of the virus will throw a wrench in the company’s recovery plans.
However, the company has something going for it that few of its competitors do — its reputation as a highly regarded discount airline.
That’s an important fact to consider as travel begins to pick up. Many people have a built-up desire to travel, even if their budgets are a bit tight.
At the same time, the pandemic led to mass job loss and financial hardship for many, with many relying on stimulus checks and other COVID-19 financial relief to get by. Thankfully, consumers are beginning to recover, but many are still relatively cash strapped.
Many of the people entering back into the travel scene will be looking for the best deals possible, and American Airlines is the first place many will look for low-cost airfare.
Considering that the stock has yet to fully recover from the pandemic-related dip, there’s plenty of room for it to climb ahead. Add in the fact that American Airlines already takes the lion’s share of the domestic flight market in the U.S. and has become a household name for low-cost airfare, and the stock looks to be a clear winner.
American Airlines’ Most Recent Financial Results
American Airlines reported exceptional year-over-year growth in the second quarter. Revenue was up more than 360%, coming in at $7.48 billion, and earnings climbed more than 100% to $0.03 per share on net income of $19 million. Both of these figures beat analyst expectations.
The company also saw net profit margins climb by more than 100% and increased its cash position by more than 200%.
3. Delta Airlines Inc (NYSE: DAL)
Delta Airlines is another household name, but it’s not necessarily known for the cheapest flights available. In fact, it’s not really known for cheap flights at all.
Delta caters to the higher-end passenger who’s willing to spend a few extra bucks on plane tickets in exchange for a more enjoyable experience. That’s why the company has become the leading airline in the U.S. for business travel.
Delta’s leadership in the business subsector of the airline industry has allowed it to grow into a $25 billion company.
Like the other airlines, Delta has had its struggles during the pandemic and, like most of its peers, it’s stock hasn’t climbed to pre-crisis share prices yet. However, the stock’s current price could be viewed as a discount.
While many consumers’ livelihoods were disrupted by the pandemic, many higher-income earners were able to keep their income flowing steadily in a work-from-home environment during the lockdowns. High-income earners and business travellers will likely still prefer to pay a few extra bucks for small luxuries and added comfort during their flights.
That thesis suggests there’s a strong probability that Delta is currently undervalued and poised for a recovery.
Delta Airlines’ Most Recent Financial Results
Delta is another company that’s experiencing tremendous growth on a year-over-year basis, and it makes sense. With COVID-19 knocking out travel for much of the past year, a recovery should be underway, and the company’s most recent numbers show that’s exactly the case.
In the second quarter, Delta generated $7.138 billion in revenue, up more than 385% on a year-over-year basis. Earnings came in at $1.02 per share, representing more than 100% growth, and net profit margins were also up more than 100%.
In addition, Delta did far better than analysts expected, beating earnings and revenue projections by 22.76% and 13.69%, respectively.
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4. United Airlines Holdings Inc (NASDAQ: UAL)
United Airlines is another well-known airline in the discount travel space. However, the company is working hard to improve consumers’ experiences and provide first-class style services at discounted rates, generating higher revenues as a result.
For example, the company was the first airline to offer passengers the opportunity to preorder snacks and drinks before boarding the plane. Not only is this simple luxury enough to improve the overall experience for consumers, it’s likely a strong revenue driver that piques consumer interest in extra purchases that might not otherwise take place.
The company is also a great play for those looking for clean energy investment opportunities. United Airlines Ventures, a wholly-owned subsidiary of United Airlines, has been working in collaboration with Breakthrough Energy Ventures, Mesa Airlines, and Hearth Aerospace to develop an all-electric aircraft. United says that the first of these state-of-the-art aircraft is expected to take flight by 2026.
If that happens, it will be a major breakthrough for both the travel industry and the energy industry. After all, one of the largest expenses for airlines is fuel, and electric airplanes have the potential to eradicate that expense.
Moreover, transportation accounts for a large portion of the greenhouse gases produced in developed nations. According to the Air Transport Action Group, aviation leads to about 12% of all carbon dioxide emissions generated as a result of travel. An electric fleet of planes would be much better for the environment than those that burn jet fuel.
At the same time, like the other companies on this list, United has dealt with some significant headwinds as a result of COVID-19. This has led to what many believe to be an undervaluation in the stock, considering the fact that air travel demand is expected to pick up substantially ahead.
If you’re looking for an opportunity to bank on the recovery of the travel industry while making socially responsible investment decisions that could lead to a healthier environment in the future, United is a strong option to consider.
United Airlines’ Most Recent Financial Results
United Airlines’ most recent financial report showed that the company is well on its way to a recovery. During the second quarter, revenues climbed more than 270% to $5.47 billion, beating analyst expectations. Unfortunately, the company has yet to regain profitability, producing a net loss of $434 million. The good news is that net losses are shrinking in a big way, down more than 73% on a year-over-year basis, although EPS missed expectations by just over 1%.
At the same time, United’s net profit margins were up by more than 92%, with the company’s cash on hand climbing well over 200%.
5. Spirit Airlines (NYSE: SAVE)
Spirit Airlines is another major player in the U.S. domestic flight market, talking about 5.8% of the total U.S. market share. Spirit is a smaller airline than some others on this list, but its modest share of a market worth hundreds of billions of dollars per year is still a sizable chunk.
Like Southwest and American, Spirit is a discount airline, taking the goal of offering significantly lower rates to the extreme. The company’s core point of value for passengers is the flight itself. It has never focused on offering extras like snacks and drinks and doesn’t splurge on the latest and greatest in comfort on their airplanes either, but that’s not necessarily a bad thing.
By avoiding spending money on extras, the company is able to offer flights at steep discounts even compared to other mainstream discount airlines.
The stock’s performance has been interesting to watch throughout the COVID-19 crisis as well. Like other airlines, the stock plummeted when the lockdowns took hold. However, Spirit’s stock also made one of the fastest recoveries, reaching prices close to its pre-COVID price by March 2021.
Unfortunately, as the summer 2021 wave of COVID cases hit in the U.S., the stock started to see declines and is now significantly lower than its pre-COVID pricing.
That opens the door to opportunity. With valuations at lows, significant opportunities may emerge as the market recovers, and Spirit has a high probability of being one of those opportunities.
Spirit Airlines’ Most Recent Financial Results
Spirit has seen a strong uptick in revenue, producing more than $859 million in the second quarter — a figure that climbed more than 520% year over year. Unfortunately, it’s also a long way off from profitability, generating losses of $2.73 per share in the quarter.
There is a silver lining in all of this. While still not generating a profit, its losses were more than 50% lower than analysts expected to see. Revenue also beat analyst expectations.
In its most recent financial report, Spirit said it had about $1.8 billion in cash on hand, and considering the current burn rate of less than $300 million per quarter, that’s plenty to make it through to a full recovery should the current wave of COVID prove to be short term, as many are expecting.
6. Alaska Air Group (NYSE: ALK)
Alaska Air Group is the company behind household brand Alaska Airlines. Like Spirit, Alaska Airlines is a relatively small player, but it controls more than 5% of the U.S. domestic flight market share, which is nothing to shake a stick at.
The company’s claim to fame is the provision of discount flights that come with some pretty significant perks. According to the company’s website, Alaska Airlines consistently ranks in the top three among all airlines in categories like low airfare, best on-time arrival rates, highest customer satisfaction, best baggage handling, and best frequent flyer program.
Looking at the performance of the stock since the beginning of the pandemic paints a pretty interesting picture. As with all other stocks in the airline space, the stock fell like a brick as COVID lockdowns led to reductions in travel demand, giving up nearly 60% of its value.
However, unlike most in the industry, the stock recovered incredibly quickly, reaching highs it hadn’t seen in more than three years by April 2021. Unfortunately, when COVID case counts started to rise, the stock started to fall along with its peers and now trades nearly 20% lower than pre-COVID prices.
The same argument can be made for Alaska Airlines as for all the stocks on this list. With this wave of the virus expected to be shorter-lived, the stock’s declines are likely overblown, and there’s a strong probability of tremendous growth ahead.
Alaska Airlines’ Most Recent Financial Results
Alaska Airlines has one of the most impressive recovery stories in the airline space. In the past quarter, the company produced $1.53 billion in revenue and $397 million in net income, up 262.71% and 285.51% year over year, respectively. Earnings per share came in at $3.13, up more than 279% year over year. Both earnings and revenue beat analyst expectations by a wide margin, as it has done for the past two consecutive quarters.
The company delivered strong results on nearly all other metrics as well. Net profit margins were up more than 150%, and operating income climbed by more than 93%.
7. JetBlue Airways (NASDAQ: JBLU)
JetBlue Airways is another relatively small company in the airline sector, but with nearly a 5% share of the domestic flight market, it’s not one to ignore.
What sets JetBlue apart is the fact that it is a low-cost option that offers amenities you won’t even find with some of the highest-cost legacy airlines.
For example, the company was a pioneer of in-flight Wi-Fi services, being one of the first ever to offer Internet in the air. Today, all JetBlue passengers enjoy access to free in-flight Wi-Fi, something you don’t see with other airlines.
Moreover, every seat on JetBlue flights comes with seat-back entertainment screens, giving each passenger the ability to enjoy their individual choice of movies, music, or TV programming.
Also, although the company uses various aircraft models, if you’re lucky enough to book on an Airbus, you’ll have access to USB ports to charge your phone and other devices in flight.
Unfortunately, JetBlue stock took the ride toward the bottom with the rest of the airlines as COVID-19 set in, with prices falling by well over 50% in the month following the beginning of the crisis. However, the stock made a swift recovery, finding its way back to just shy of pre-crisis levels by March 2021 before falling about 25% as the next wave of the virus began to spread.
These recent declines set the stage for a tremendous opportunity. When the recovery happens, investors who got in when prices were low will reap the biggest rewards.
JetBlue Airways’ Most Recent Financial Results
JetBlue is the only stock on this list that has beat analyst expectations in terms of both earnings and revenue in the past four consecutive quarters.
In the second quarter, revenue was up more than 597%, clocking in at $1.5 billion, net income climbed 120% to $64 million, and earnings came in at $0.02 per share, representing an increase of more than 116%.
8. Boeing (NYSE: BA)
Boeing isn’t necessarily an airline, but it is crucial to the aviation industry, offering technologies and vessels that many in the industry depend on. So, it deserves a spot on this list.
The company is one of the top dogs in air travel, designing, manufacturing, and selling airplanes and rotorcraft. Boeing also is a major player in space flight, defense, and other industries. In its product lineup you’ll find rockets, satellites, telecommunications equipment, and missiles often used by the U.S. military and our allies.
Boeing stock took a major hit as COVID-19 emerged, and unfortunately, the company has yet to recover from the declines. However, many believe that the drop was overblown.
Sure, Boeing is a key supplier for the battered airlines, but it has multiple hedges against declines within the industry. After all, COVID didn’t slow down the need for national defense, or for telecommunications infrastructure and satellites.
Even with these hedges in place, the stock has had a similar reaction to that of companies that focus solely on air travel.
Unlike most others on this list, the latest wave of COVID has had little effect on the stock, showing that investors are starting to realize that Boeing has hedged its bets. Nonetheless, the stock is still trading more than 35% lower than it was before the global health crisis set in, outlining an opportunity to get in on an undervalued play.
Boeing’s Most Recent Financial Results
Boeing had an incredible second quarter, driving more than 43.97% growth in revenue year over year to $17 billion. Net income was also up, climbing 124.71% to $587 million. Finally, earnings per share was up 123.81%, climbing to $1.
The company beat expectations on both earnings and revenue.
Consider the U.S. Global Jets ETF
Although this list is focused on airline stocks, the reality is that investing in individual stocks takes quite a bit of time to research and manage your portfolio. Some investors don’t have either the know-how or the desire to maintain a successful investment portfolio built with individual stocks.
The U.S. Global Jets ETF (ticker: JETS) is an exchange-traded fund (ETF) that offers investors a diversified portfolio of airlines and aircraft manufacturers all over the world. The fund is managed by some of the top pros on Wall Street, so you won’t have to worry about doing the research yourself.
While the expense ratio is relatively high at 0.60%, the fund has performed extremely well historically, which is why it’s garnered more than $3 billion in investments.
All in all, the airline industry is primed for a comeback. Although COVID delivered a major blow to the airlines, as the latest wave of cases subsides and more and more Americans get vaccinated, demand for travel is likely to pick up in a big way moving forward.
As this happens, the downtrodden airline industry will find its way back to the incredible profitability investors are used to seeing, resulting in massive opportunities for those who jumped in while prices were still low.
Even though airlines are likely to see a big comeback ahead, it’s important to do your research before diving into any stock. Educated investment decisions tend to be the ones that produce the strongest returns.
Disclaimer: The author currently has no positions in any stock mentioned herein nor any intention to hold any positions within the next 72 hours. The views expressed are those of the author of the article and not necessarily those of other members of the Money Crashers team or Money Crashers as a whole. This article was written by Joshua Rodriguez, who shared his honest opinion of the companies mentioned. However, this article should not be viewed as a solicitation to purchase shares in any security and should only be used for entertainment and informational purposes. Investors should consult a financial advisor or do their own due diligence before making any investment decision.