Airline Turbulence Is Creating a Pivotal Opportunity for Investors
Several major airlines have hit an air pocket. Here's which ones to buy and which ones to avoid.
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It’s been a smooth ride for airline stocks for the past year. The sector, represented below by the U.S. Global Jets ETF JETS, has been steadily gaining altitude since August.
This ETF contains both large and small U.S. carriers, and boasts a 38% gain over the past six months. I wish every flight could be as smooth as the trend on this chart:
However, some individual airline names have hit turbulence in recent days. After reporting earnings on Thursday morning, American Airlines AAL hit an air pocket, causing a decline of 8.74%.
Despite this turbulence, American Airlines remains firmly above its 50-day moving average (blue). The bullish trend is somewhat bruised, but remains intact, as the stock hasn’t yet formed a lower high.
The Fort Worth, Texas-based carrier beat analysts’ estimates for earnings and revenue, but incurred the wrath of sellers due to lackluster forward guidance.
Similarly, United Airlines UAL has pulled back after reporting earnings earlier this week. Chicago-based United also exceeded analysts’ expectations for earnings and revenue.
However, unlike American Airlines, United's projected earnings for the current quarter handily exceeded expectations. Surprisingly, after gapping higher on the positive news (red arrow), United shares began their descent. The stock fell by 4.6% on Thursday, and is down by about 10% since Wednesday’s post-earnings open.
Delta Air Lines DAL, which reported earnings earlier this month, also exceeded analysts’ estimates for earnings and revenue.
Most of the smaller carriers are also doing well. Below, we see JetBlue Airways (JBLU, left chart) and Frontier Group Holdings (ULCC, right chart). Both regional carriers are trending higher, although perhaps not as impressively as their larger rivals.
My top pick in this sector remains Alaska Air Group ALK, which reported earnings on Wednesday. Notice that this stock didn’t pull back after earnings. Alaska Air trounced earnings estimates by a wide margin, and reached an intraday all-time high on Thursday (red arrow).
My pick for an airline to avoid is Southwest Airlines LUV. Of all the airline charts mentioned today, this is the only one trading below its 50-day moving average (blue). Southwest is scheduled to report earnings next week.
I’d feel comfortable buying the dip on American, United, or Delta. Delta CEO Ed Bastian has already stated that he expects 2025 to be “the best financial year” in the company’s history.
The larger airlines also stand to benefit from an increase in travel to Europe. European travel is likely getting a boost from the weak euro, which is currently trading near $1.04. The euro has been trending steadily lower since September.
With the weak euro increasing the buying power of the U.S. dollar, United and Delta recently increased their capacity to Europe. American added five new European routes last year. We expect the weak euro to act as a tailwind for the larger carriers in 2025.
At the time of publication, Ponsi was long ALK.
