Airlines are an important part of the economy, but their stocks have often been lousy investments. Airline stock prices move with economic cycles, and past downturns have caused airline bankruptcies and failures.
Industry consolidation, however, has created a small group of competitors that are more effectively using technology to manage schedules and set fares. Today, four airlines control about 80% of the U.S. market.
Airlines have flown through turbulence
Airlines have recovered nicely from a near-grounding during the COVID-19 pandemic, with travel demand returning with a vengeance in the years since. Airline revenue is sky-high as a result, and some of the largest carriers have returned to profitability.
Our changing lifestyles have created new threats and new opportunities for the sector. The shift to "work from home" and "work from anywhere" has created year-round demand for leisure travel, helping to smooth out what has historically been a highly cyclical industry where demand spikes in the summer and falls flat in January.
But new headwinds have complicated matters. Global conflict and the corresponding spike in oil prices have kept much of that added revenue from hitting the bottom line since fuel accounts for as much as 30% of an airline's total costs. The airlines are also struggling to find pilots, one of the reasons for cancellation headlines.
The good news is that the now-consolidated airline sector is much healthier than just a few years ago. U.S. airlines survived the pandemic without any major bankruptcies, and the major ones appear healthy enough to continue to fly through the economic turbulence.
The best airline stocks to buy right now
Airlines in the U.S. fall into three categories:
- Full-service companies, which fly globally, have different cabin classes and serve many markets.
- Discounters, which offer few frills and service few destinations.
- Regional airlines, which provide small-jet service to secondary markets under the brands of full-service partners.
There are about a dozen publicly traded airlines in the U.S. Here are some of our top picks:
Delta Air Lines
NYSE: DAL
Key Data Points
This airline is the driving force behind much of the recent innovation in the industry. Atlanta-based Delta kicked off a round of consolidations that helped stabilize the business when it acquired Northwest Airlines in 2008, and it has revamped pricing to better compete with discounters. Delta even bought an oil refinery to help ensure its access to jet fuel supplies.
More recently, Delta was out in front of the pack when it came to forging a new labor deal with its all-important pilots group. Where Delta goes, its rivals follow.
Post-pandemic Delta has a stable balance sheet and relatively strong labor relations, making it a good choice to be among the first international carriers to fully recover.
United Airlines Holdings
NASDAQ: UAL
Key Data Points
United has large operations catering to Silicon Valley and the U.S. energy sector, as well as a massive network throughout Asia. The highly cyclical nature of those markets means that United's results can ebb and flow with tech or energy.
Chicago-based United historically was the envy of the industry due to its large presence in key business markets and its ability to offer unrivaled connections to corporate travelers. Its advantage waned during the pandemic, but its network is still a key advantage for United.
Importantly for investors, this long-time underperformer now has a stable and progressive management team that has done a good job modernizing its long-sleepy operation.
Southwest Airlines
Southwest Airlines was the original discounter, but it is now one of the titans of the industry and no longer a maverick start-up. The Dallas-based airline remains the only major carrier never to land in bankruptcy court, and its simplified operations have a track record of remaining profitable even when rivals struggle.
Southwest's pristine reputation has taken a few hits in recent years. The airline had a high-profile schedule meltdown during the 2022 holiday season, and issues with its aging IT infrastructure led to another systemwide grounding of planes in 2023. The company was the target of activist pressure in 2024, which led Southwest to modernize its systems and add fees for checked bags.
But even if this is not the Southwest of old, the airline is, by and large, a reliable operator that remains a cost leader. It also has the industry's best balance sheet, making it an investor favorite for its ability to survive.
Alaska Air Group
Alaska, as its name suggests, has largely been focused on the U.S. Pacific Northwest for much of its history. But thanks to its 2016 purchase of Virgin America and 2023 acquisition of Hawaiian Airlines, the company is now a major player down the West Coast into southern California and has a transcontinental business as well.
Alaska has historically partnered with its bigger rivals, giving its customers access to the entire globe and its partners more service to small Pacific Northwest markets. These days, Alaska is tied most closely to American Airlines Group (AAL -2.10%).
Through the years, Alaska has developed a reputation as a solid operator that has outperformed its larger rivals. The airline experienced some hiccups when integrating Virgin America but has regained altitude and once again ranks as one of the most intriguing investments in the sector.
Frontier Group Holdings
NASDAQ: ULCC
Key Data Points
Understanding the airline sector
Investors should understand several airline-specific terms before buying any stock. Here's what you need to know:
- RASM: Short for revenue per available seat-mile, RASM is a measure of airline profitability. RASM is important because all flights have different fare and cost structures depending on many variables, including flight distance and aircraft type. Simply looking at total revenue or expenses won't give you the full picture of profitability or margins.
- CASM: Short for costs per available seat-mile, CASM is an airline’s total costs divided by the number of available seats, then multiplied by miles flown. It measures expenses the way RASM measures sales.
- Load factor measures how well an airline is filling its seats. If 60 of 100 seats on a flight are full, the flight's load factor is 60%.
Airlines provide this information on earnings releases and conference calls.
Related investing topics
Are airline stocks right for you?
The airline industry remains cyclical, but the pandemic proved the companies are now strong enough to withstand tough operating conditions without having to fly into bankruptcy.
If you are bullish on long-term demand for travel, buying into a well-run airline is a way for your investment dollars to go along for the ride.
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