Airline stocks are cyclical and previous downturns have resulted in multiple airline failures and bankruptcies. It’s the question everyone’s been asking: Is it safe to buy airline stocks now? Which ones are the best-run companies?
Benzinga takes a look at some of the best airline stocks so you know where in this industry you should put your money.
Highlighted Airline Stocks
Overview: Airline Stocks
In short, U.S. airline stocks have been lousy investments after the industry was deregulated in the late 1970s. The deregulation allowed companies to fiercely compete for business. The federal rule changes resulted in a boom and bust pattern — major profits when times were good and liquidations or bankruptcies when the economy went south.
Companies like Trans World Airlines (TWA), Braniff International and Eastern Air Lines vanished during this era and investors took billions in losses.
The early 2000s was a period of consolidation and restructuring. The number of airlines reduced and the remaining competed and secured the balance sheets of surviving companies. American Airlines Group merged with US Airways. Delta bought Northwest, and Southwest Airlines bought AirTran.
Today the airline industry helps propel $1.7 trillion in economic activity.
The over 10 million jobs in the U.S. airlines now fall into 3 categories:
- Regionals, which offer smaller-jet services to secondary markets under the brands of full-service companies.
- Full-service companies, which fly internationally, serve multiple markets and have various cabin classes.
- Discounters, which have fewer offerings and cover fewer destinations.
Best Online Brokers for Airline Stocks
You can buy airline stock through any online broker with access to the major stock exchanges. Powerful stock screeners, analysis and research tools are available for use by anyone who registers.
You may apply custom filters to identify stocks that fit your investing goals. Most online brokerages will also offer commission-free trades.
Here are Benzinga’s favorites to consider if you trade airline stocks.
Features to Look for in an Airline Stock
You’ll want to ask yourself about unit revenue, stock liquidity and total debt ratio before you choose an airline stock. Here’s what you need to know:
- Unit revenue generally describes revenue statistics adjusted for the amount of flying an airline does. Passenger revenue per available seat mile (PRASM) is the most common unit revenue statistic. It is obtained by dividing airline revenue from ticket sales by the number of available seat miles (ASMs).
Revenues from ticket sales typically rise and fall with air traffic. A higher PRASM is better because it means an airline squeezes more revenue from each unit of capacity.
Revenue per available seat mile (RASM) is an important evaluation metric and factors all sources of revenue. You should consider this for low-cost carriers that often rely on ancillary (non-ticket) revenue to drive sales.
- The stock’s liquidity refers to how quickly the shares of a stock can be sold or bought without significantly impacting the stock price. Airline stocks with low liquidity could be difficult to sell and result in huge losses if you can’t relinquish the shares when necessary.
- Total debt ratio is a great way to understand a company’s financial structure. It compares a firm’s total liabilities versus its total assets. Unlike debt-equity ratio, total debt ratio also factors in short-term liabilities and assets. This ratio may help you assess whether a company will face financial difficulty in future.
A firm with a huge debt ratio will probably incur higher interest payments. This will also reduce profits. A company may then experience difficulty raising capital since investors could see a higher risk of bankruptcy. A huge debt balance could be at risk of credit defaults if the market plummets.
Airline Stocks to Watch Out for This Year
Ready to gain altitude in the airline industry? Here are some of the hot airline stocks you can add to your portfolio.
1. American Airlines Group Inc. (NASDAQ: AAL)
American Airlines Group Inc. was born on December 9, 2013, after a merger between US Airways Group and American Airlines. The company averages 6,700 flights per day to about 350 destinations in over 50 countries worldwide. The airline is also the 3rd largest airline at London Heathrow, with about 21 daily flights.
For the 3 months ended March 31, 2020, American Airlines reported $8.5 billion in total operating revenues — a $2.2 billion net loss from Q1 2019.
The airline ended 1st quarter 2020 with $6.8 billion available liquidity. American will receive $5.8 billion through the Payroll Support Program to shield it from the effects of low sales due to COVID-19.
2. Southwest Airlines Co. (NYSE: LUV)
Southwest Airlines has been the nation’s largest domestic air carrier since 2003. For 49 years of service, this Dallas-based airline has set the bar high with excellent customer service. In 2019, over 60,000 employees served more than 130 million passengers.
Total 2019 operating revenues were a record $22.4 billion — up 2.1% despite 1.6% fewer available seat miles (ASMs) as a result of the Boeing 737 MAX groundings.
Southwest Airlines recorded a net income of $2.3 billion or $4.27 per diluted share for its 47th consecutive year of profitability. The company also reported record shareholder returns of $2.4 billion.
The airline ended 2019 with service to 101 destinations and 747 aircrafts in its fleet. Southwest Airlines was named the Domestic Airline of the Year by the Airforwarders Association.
3. Delta Air Lines, Inc. (NYSE: DAL)
Delta Air Lines is a global airline leader in services, products, reliability, innovation and customer experience. It is headquartered in Atlanta and connects to over 300 destinations in 50 countries. Delta offers over 5,000 daily departures and serves over 200 million passengers annually.
2019 total revenue increased to a record $47 billion — up by 7.5% from the previous year. It also generated $8.4 billion of operating cash flow, $4.2 billion free cash flow and returned $3 billion to its shareholders through share repurchases and dividends. The company pumped $4.5 billion into the business to support the delivery of 88 new aircrafts.
The company’s 90,000 employees shared a record $1.6 billion profit sharing payout on February 14, 2020, and $87 million in Shared Rewards. It also reported $7.30 diluted earnings per share — an increase from $5.67 in 2018.
4. United Airlines Holdings (NASDAQ: UAL)
United Airlines Holdings served more than 162 million customers through 1.7 million flights in 2019. It operates 791 mainline aircraft while its United Express carriers operate 581 regional aircrafts.
In fiscal 2019, the company reported $3 billion net income or $11.58 diluted earnings per share, an increase from $2.1 billion or $7.67 diluted earnings per share in 2018.
The passenger revenue also increased by $1.9 billion from 2018 after a 3.5% growth in available seat miles (ASMs). UAL repurchased 19.2 million shares for $1.6 billion and recorded U.S. Department of Transport on-time arrival rates of 77.9%.
5. Alaska Air Group Inc. (NYSE: ALK)
Alaska Air Group operates 2 airlines — Horizon and Alaska. Horizon and Alaska have individual business plans, economic risks and competitive factors. Together with its regional airline partners, Alaska Air flies to 115 destinations with more than 1,300 daily departures through a vast network across the United States, Canada, Mexico and Costa Rica.
In 2019, the airline carried an all-time record of 47 million guests. It earned $769 million consolidated income compared to $437 million in the previous year.
The company also marked its 16th consecutive year of profitability on an adjusted basis. Alaska Air employed 24,134 personnel at the end of fiscal 2019.
Some of its biggest shareholders include The Vanguard Group Inc., T. Rowe Price Associates Inc., BlackRock Institutional Trust Company and PRIMECAP Management Company.
Biggest Airline Stock Movers of the Day
Airline stocks could lose or gain significantly in regular and premarket trading sessions depending on earnings releases, airline partner updates and other market news. Check in at Benzinga to keep tabs on premarket movers.
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Soar with Confidence in the Airline Industry
The future of the airline industry is still unclear. Some traders speculate further declines and want to use this opportunity to go short on airlines and airplane manufacturers. However, the worst may be behind us, creating an opportunity to buy airline stocks at a huge discount.
Many airline stocks lost as much as 70% to 80%, so the risk-reward ratio is enticing should the stocks regain their previous price levels with the promise of federal relief in coronavirus aid.
Do your homework and avoid companies with vulnerable operations and balance sheets. Travel demand is expected to rise, so there’s ample room to soar into the foreseeable future.
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