Cruise operators were the good news travel stocks of 2023 as holidaymakers put to rest the hardships of the Covid pandemic and climbed back aboard. Now in early 2024, it appears the airline stocks are here to join them.
Among the best performing stocks this week are American Airlines (NASDAQ: AAL), up 11% over the past week, United Airlines (NASDAQ: UAL), with weekly gains of 10.1%, Delta Air Lines (NYSE: DAL), climbing 9.2% and Southwest Airlines (NYSE: LUV) up 7.4%.
All four make up the biggest holdings in the U.S. Global Jets ETF (NYSE: JETS), an exchange traded fund that tracks the industry, and has risen 6% in the past week. During 2023, JETS climbed 11.6%, compared to the SPDR S&P 500 ETF (NYSE: SPY), which tracks the S&P 500 Index, which gained 24% during 2023.
Transportation Security Administration data from June indicated that summer air travel returned to its highest levels since 2019. This suggests that travelers weren't put off by higher interest rates, and the airline industry returned to pre-pandemic levels of activity.
Economic Headwinds In 2024
But can they maintain the momentum? Airline stocks are facing several headwinds in 2024 that include the likelihood of an economic slowdown, the risk of higher-for-longer interest rates and an escalation in geopolitical tensions affecting oil prices - fuel is a major cost factor for airlines.
That said, analysts seem to like airlines at the moment.
Following last week's incident involving Air Alaska Group Inc (NYSE: ALK), where an emergency landing was necessitated after a significant portion of the fuselage from its Boeing 737 Max 9 jet blew out mid-flight, there could be a silver lining for airlines.
This incident might lead to more affordable fleet replacements, as Boeing Co (NYSE: BA) might reduce its prices to counteract the negative impact on its reputation caused by the occurrence.
Closer Look At The Stocks
Delta, which reports its fourth-quarter results on Friday, appears to be universally liked, with no hold or sell ratings from analysts. It currently holds seven "strong buy" and 11 "buy" ratings, according to data from Forbes Advisor.
Forbes Advisor said: "Delta has learned from past disruptions and knows how to cash in when air travel trends are favorable. And right now, trends are definitely favorable. Wall Street consensus targets for Delta revenue this fiscal year are up almost 19% over last year's numbers."
American Airlines is not so well-loved, but is the biggest gainer of the sector this week. Its average rating is a "hold."
Forbes Advisor said: "The carrier recently announced its largest-ever plan for tropical travel during the winter months. Improvements and expansion like this show that now could be a great time to consider AAL stock as its improved profitability converges with strong travel demand."
Southwest Airlines has announced a flash sale, with passengers able to benefit from up to 40% on base fares of selected flights. It has an average analyst rating of a hold.
Forbes Advisor said: "If consumers continue to travel and if confidence continues to return to this airline, LUV stock could easily return to its prior glory in the months and years ahead."
United Airlines has an average rating of a buy.
Forbes Advisor said: "It does have one of the higher debt-to-asset ratios on this list, with a reading of about 0.5, but it also is one of the Big Four carriers with roughly 1,400 total planes in its fleet. You can't get to a scale like that without significant investment."