Over 2.6 million passengers travel in and out of U.S. airports every day. Air travel has become the preferred form of long-distance travel for millions of people across the planet. It takes hundreds of airlines to supply the demand for passenger air travel worldwide. Some of the largest airlines in the world are American companies but there are smaller operators that make for interesting investment opportunities, as well. Our picks for the best airline stocks include stocks from both large-cap and small-cap operators.
The airline industry is a tough place to do business. Pricing is extremely competitive and fuel costs are a huge portion of operating expense, so even a small jump in jet fuel prices can have a huge impact on earnings. In most cases, airlines are working on razor-thin margins. Plus, they are often under pressure by labor disputes. Labor is the average airline’s number one cost, and unions have a lot of leverage in collective bargaining negotiations, as a result. As a result of the uncertainty facing these companies, successfully investing in airline stocks is no simple task.
The airline industry faces uncertainties so significant that they make or break profits, but you can find good value in airline stocks if you do your homework. If you want to learn how to spot quality airline stocks, here are some performance metrics commonly used in the airline industry.
Available Seat Mile
(total number of available passenger seats) x (total number of miles flown)
This number is used to measure an airlines capacity. It tells us the airlines total revenue-generation capacity for the period in question.
Revenue Passenger Mile
(number of revenue-generating passengers) x (miles flown)
This figure tells us many paying passengers attended each flight per mile. When compared with the available seat mile, it shows how efficiently an airline is filling its flights.
Revenue Per Available Seat Mile
(total revenues) ➗ (number of available seats)
Revenue per available seat mile measures how well an airline is monetizing its available seats.
Airlines profit on efficiency. Good operating margins give airlines more flexibility in the case of elevated costs. With higher margins, airlines can absorb increased costs and still turn a profit. Remember these three ratios when you are analyzing airline stocks so you can form a clear picture of each airlines business performance.
Best Airline Stocks of 2019
American air carriers are some of the largest airlines in the world. Shares of these larger airlines offer some of the best airline investment opportunities available to traders.
American Airlines (NYSE: AAL)
One of the largest airlines in the U.S., American Airlines runs over 7,000 flights to more than 350 destinations in 50 different countries. American Airlines became the largest carrier in the U.S. when they absorbed U.S. Airways several years ago.
Delta Airlines (NYSE: DAL)
Delta runs both international and domestic passenger flights; maintaining a fleet of about 800 aircraft. It operates hubs at airports across the world that serve as the framework of their flight offerings. Delta also provides maintenance & repair services for aircraft fleets.
Southwest Airlines (NYSE: LUV)
Southwest primarily runs domestic flights passenger flights services to 99 destinations in 40 different states. The company also offers international flights to a handful of destinations in the Caribbean and Central America, but it offers no transoceanic flights to Europe or Asia.
United Continental Holdings (NYSE: UAL)
Operating a fleet of over 1,329 aircraft, United Continental is one of the largest aircraft operators in the world. In addition to providing passenger flights to destinations around the world, United uses its mainline and regional operations to transport cargo. They also sell fuel, maintain aircraft, and provide ground upkeep services for third-parties.
Best Small Cap Airline Stocks
Smaller companies are often more insulated from larger industry trends. While these smaller airline stocks have more inherent uncertainty, they also have a greater potential for growth than the established airline stocks. These are the best airline stocks to buy if you’re looking for growth opportunities.
Hawaiian Holdings (NSDQ: HA)
A small operator, Hawaiian Airlines runs passenger flights between large cities in the continental U.S. The airline also services all six of the Hawaiin islands, and it also provides flights to several major Asian destinations, including Sydney, Seoul, and Osaka.
SkyWest (NSDQ: SKYW)
Despite being a small cap company, SkyWest is a major airline in the U.S. They currently operate 68 different routes utilizing 10 hubs that they lease through third parties, like Delta and American. The company makes a significant portion of their revenues through codesharing agreements – common practices in the airline industry – in which SkyWest is paid to operate and maintain aircraft used on flights that are marketed and scheduled by a partner airline, like American and Delta.
Spirit Airlines (NYSE: SAVE)
Spirit provides low-cost air travel for passengers flying within the U.S., Carribean, and South Americal. This airline is the seventh largest commercial airline in the U.S., and its offering of low-priced fares has made it a favorite amongst frugal flyers. The airline runs about 600 flights daily to 72 destinations within and nearby North America.
Best Airline Stocks: Closing Thoughts
Trading airline stocks is a tricky business, but the rewards can be great if you’re willing to take a chance. Even the best airline stocks can be held down by macro trends, like fuel prices and labor disputes. Margins are key to success in this business so look for companies that consistently keep their operating costs down. The companies with good margins will be the ones that can best withstand unforeseeable expenses, like high fuel costs or lower demand.
Airlines businesses are cyclical, but it’s an easy place to make money if you’re an astute trader. To find the best airline stocks for yourself, you need to look for the companies that best handle the fluctuations in the market. Ultimately, studying financials data is an important part of investing in airline stocks, but you should also use technical analysis to help time your trades.
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