If you are planning to fly during the 13-week-long summer break, get ready to encounter crowded airports. The airline industry is gearing up to serve a record number of passengers this summer, thanks to low airfares, decent job addition, higher household net worth and a robust U.S. economy. Banking on such bullish factors, keeping an eye on sound airline stocks seems judicious.
Summer Air Travel to Hit Record High
This summer, airline travel is expected to rise. The industry trade organization, Airlines for America (A4A), recently announced that a record 257.4 million passengers are anticipated to take to the skies on this summer, up 3.4% from 248.8 million commuters last summer, which was a record high.
What’s more, on an average a solid 2.8 million Americans will be flying per day especially from Jun 1 to Aug 31. And that is almost 93,000 more per day, compared to the same time frame last year. By the way, at the peak of travel period, between Jul 20 and Aug 10, it’s expected that nearly 3 million people will be flying on a daily basis.
This year, in fact, will mark the 10th successive year of an increase in passenger count during summer. And to handle the higher demand, carriers have added nearly 111,000 more seats per day than a year ago. Such high supply is expected due to stuffing more seats in existing planes as well as increasing the capacity of new commercial fleets.
Some skeptics in the meantime may be cautious that grounding of the Boeing 737-MAX 8 and MAX 9 aircraft may hamper air travel this summer. But in reality, it won’t have much of an impact. After all, it’s only 72 MAX that were anyhow flying.
The American Automobile Association (AAA) further confirmed that almost a third of Americans will be traveling this summer and many will prefer airline travel. AAA forecasted that 3.25 million people will take to the skies during the upcoming Memorial Day travel holiday period, 4.8% more than last year, second only to 2005.
What’s Driving Air Travel?
Airlines’ initiative to meet growing demand by increasing seat supply, surely, is boosting them. But, it’s the low airfares that are actually attracting travelers. According to the U.S. Bureau of Transportation Statistics, the average inflation-adjusted domestic airfare dropped last year for the fourth straight year. The average airfare last year was $350, down almost 15.9% from the average price in 2014 and the lowest since the federal agency began tracking these records in 1995.
John Heimlich, Airline for America's vice president, said in a statement confirmed that “with airlines offering low fares and reinvesting billions of dollars in their product, there’s never been a better time to fly. This summer, U.S. airlines expect travelers to take to the skies in record numbers.”
We also shouldn’t forget that an increase in summer travel demand is being driven by healthy economic growth as well. Payrolls jumped a solid 263,000 in April, per the Labor Department, and exceeded all expectations. Unemployment rate fell to 3.6%, a 49-year low, and average hourly earnings growth was unchanged at a healthy 3.2%.
The Commerce Department further added that the U.S. economy expanded at a 3.2% annual pace in the January-March period, the best first-quarter growth since 2015. The gain was well above analysts’ expectations of a 2.3% increase in gross domestic product. And such a growth overcame headwinds including government shutdown in January and uncertainty about tax refunds, indicating that the economy is well poised to gain in the long run.
5 Airline Stocks to Fly High This Summer
Given the aforesaid factors, travel by plane is set to break records this summer. We have, thus, selected five airline stocks that you should add to your watch list. These stocks have a positive earnings surprise and are more likely to positively surprise in the future.
SkyWest, Inc. SKYW operates a regional airline in the United States. The company currently has a Zacks Rank #1 (Strong Buy). It has average four-quarter positive earnings surprise of 14.44%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The company’s expected earnings growth rate for the current quarter and year are a solid 11.2% and 14.9%, respectively.
United Continental Holdings, Inc. UAL, through its subsidiaries, provides air transportation services in North America. The company currently has a Zacks Rank #3 (Hold). It has average four-quarter positive earnings surprise of 14.04%.
The company’s expected earnings growth rate for the current quarter and year are a superb 26.6% and 22%, respectively.
Southwest Airlines Co. LUV operates a passenger airline that provides scheduled air transportation services in the United States. The company currently has a Zacks Rank #3. It has average four-quarter positive earnings surprise of 6.96%.
The company’s expected earnings growth rate for the current quarter and year are an encouraging 8.7% and 10.1%, respectively.
American Airlines Group Inc. AAL, through its subsidiaries, operates as a network air carrier. The company, currently, has a Zacks Rank #3. It has average four-quarter positive earnings surprise of 1.83%.
The company’s expected earnings growth rate for the current quarter and year are a steady 5.5% and 12.1%, respectively.
Alaska Air Group, Inc. ALK, through its subsidiaries, provides passenger air transportation services. The company currently has a Zacks Rank #3. It has average four-quarter positive earnings surprise of 10.37%.
The company’s expected earnings growth rate for the current quarter and year are a promising 13.9% and 27.8%, respectively.
In fact, SkyWest, United Continental Holdings, Southwest Airlines, American Airlines Group and Alaska Air Group have already gained 17.1%, 4.2%, 8.2%, 2.4% and 15.4%, respectively, over the past two-month period.
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