What airline is best to buy stock in?
Airline constitutes a significant part of the economic contributor. But investing in these stocks hasn't always been a great idea as it includes a lot of turbulence, mainly for first-time buyers. The economic cycle and airline stocks often correlate with each other, and past downturns have even resulted in bankruptcies and failures within the airline industry.
But is this trend going to go further? Well, definitely not because the airline industry has changed, and a few big players have joined the forces, and now they are using innovative technology to handle things like schedules and ticket prices. If you look at the US airline industry, only four airlines cover 80% of the US market. Dozens of airline industries publicly trade in the US market, but here are some top picks for you to select the best airline stock if you are considering buying one.
Key Highlights
- The airline stocks are linked to economic cycles. It means they are connected to how well the economy is doing.
- The airline industry is a capital incentive, and it means the carrier borrows heavily to finance new plans and equipment.
- Fuel prices are a significant expense for airlines, and any oil price fluctuation can impact the industry's operating expenses and profit margin.
Best Airline Stock to Buy
Delta was established in 1924 and stands as one of the oldest and most extended airlines, operating an extensive fleet of approximately 1,250 aircraft. It has also gone through difficult situations throughout its long history, and it definitely knows how to learn the ropes and demonstrate the ability to capitalise on favourable trends in air travel.
If you look at Delta's current market, it is experiencing positive trends, with Wall Street projecting a nearly 19% increase in revenue for the fiscal year compared to last year. It has outperformed and has an anonymous favour from the analyst who suggests a strong buy and 11 buy rating, including Morgan Stanley in July.
It's not just about the current trend; historical evidence has also shown that Delta has played an influential role in shaping the airline industry. It acquired Northwest Airlines in 2008, which has contributed strategically to stability in the industry. It has also changed and adapted to pricing strategies to compete with discount carriers and even diversified by acquiring an oil refinery just to secure a stable jet fuel supply.
Recently, Delta established a new labour agreement, which was very important because it has significantly influenced industry practices historically. Today, it has a stable balance sheet and good relations with its workforce. This is what investors look for.
Southwest Airlines
Southwest Airlines was initially recognised as a discount trendsetter that has evolved into a prominent entity within the airline industry. It is situated in Dallas and is the only industry that is recognised as a major carrier to have never undergone bankruptcy proceedings. It is known for its steemed operation and demonstrated profitability even during periods of struggle.
Obviously, like any other airline industry, Southwest has also faced operational challenges during the pandemic. Another issue Southwest had was during the 2022 holiday season due to problems with its ageing IT infrastructure in April. This was not supposed to happen, especially during the holiday season, but despite the setbacks, Southwest has maintained its appeal as a reliable and cost-efficient operator.
It has a robust balance sheet, and even investors favour it due to its high earnings. In 2023, Southwest faced some difficulty due to travel disruptions over the holidays, but its stock rebounded impressively and reached levels last observed in December 2022.
If you look at Southwest's financials, it is revising its earning projection for the fiscal second quarter. While the company has losses due to disruptions in 2022, its core business still exhibits strength. Continuous customer travel and their confidence within keep this Southwest stock at a higher level. In terms of debt management, Southwest has a debt-to-asset ratio of less than 0.3, which indicates a solid financial foundation to overcome all short-term challenges.
United Airlines
United Airlines maintains a big operation, especially in Silicon Valley and the US energy sector. It has a robust network spanning over Asia. Similar to other airline industries, the financial performance of United Airlines has been influenced by the cyclical nature of the markets, which reflects intense volatility correlated to the technology and energy sectors.
Its headquarters is in Chicago, and historically, United Airlines has enjoyed a reputable position within the airline industry due to its presence in critical businesses and unparalleled connectivity for corporate travel. However, the challenges during the pandemic have made United Airlines limited its network.
United Airlines has transformed from a historically underperforming entity to one of a stable and progressive management team that is continuously engaging itself in modernising. If you look at its current trend in July, it encountered few travel descriptions due to excessive demand and limited capacity, which questioned the company's fundamentals.
However, its report has proved its financial strength, which has recorded a high quarterly operating cash flow of over $3 billion and a remarkable year-over-year growth rate in operating revenue that has surpassed 51%.
On the downside, it is also important to know that United Airlines has a higher debt-to-asset ratio of approximately 0.5. However, one must not forget it is one of the four big carriers in the USA, with an operating fleet of around 1,400 planes and significant capital investment.
Alaska airlines
Alaska Airlines initially concentrated on the US-specific northwest, but it expanded after the acquisition of Virgin America in 2016. This strategic move has positioned the company as a major West Coast player and extended its operation into Southern California.
Alaska Airlines was closely associated with American airline groups, and this is what distinguishes it as Alaska is known for its partnership with larger counterparts. This strategy facilitated global access for its customers and enhanced the service capabilities for partners in the smaller Pacific Northwest market. The acquisition of Virgin America was quite tricky for Alaska, but it has re-established itself as a compelling investment within the sector.
Initially, it was a mid-size carrier that served the Western USA and Canada, but due to its aggressive expansion, it has entered into a new market. Now, it has introduced international service to the Caribbean and has established direct roots from Portland, Oregon, to Miami, as well as from Palms Springs to New York.
Its reliability and super customer satisfaction keep Alaska at a different level, and it has consistently ranked among the top airlines in the USA. It was honoured with the Global Airline of the Year award in 2022 by the industry group Air Transport World.
Currently, Alaska Airlines holds five strong buys and the same ratings from Wall Street analysts. Again, the rating from Morgan Stanley solidified its status as a leading airline in the industry. If you look at its debt-to-asset ratio, it is less than 0.3, which means it has the financial stability to overcome short-term financial challenges.
Other Airline Industries with a ‘buy’ from Wall Street analyst
- Ryanair Holdings plc
- Sun Country Airlines Holdings
- Allegiant Travel Company
- American Airlines Group Inc.
Final words
Before you decide to invest in airline stocks, it is vital to understand the benefits and risks of these stocks. The potential benefits include growth, dividend income, and portfolio diversification, which gives exposure to transportation sectors. Still, it also has a risk of cyclical nature, fuel price volatility, regulatory concerns, and competition. As an investor in airline stock, it is good to prepare yourself for the inherent risk associated with the cyclical industry and external factors beyond the company's control. Above is the best airline stock to buy that has the potential to provide enormous benefits, but at the same time, they are at risk.
