U.S. Markets open in 13 mins

5 Airline Stocks Ready for Takeoff This Spring

Tirthankar Chakraborty

The airline industry would like to put the dismal 2018 behind it. Most of the airline companies ended the year in the red as investors were concerned about higher oil prices hurting profit margins.

Oil prices now have slipped to just below $60 a barrel from a peak of above $75 last October. Airline stocks begun this year on a positive note, thanks to upbeat earnings results. Shares of airline stocks are now trending higher despite some hiccups due to a partial government shutdown. After all, Delta Air Lines DAL CEO Ed Bastian mentioned that the longest-ever political standoff did cost the company $25 million in revenues in January.

Nonetheless, the partial government shutdown is currently over and things are looking up for airline stocks this spring season. Per Airlines for America (A4A), the industry trade organization for the leading U.S. airlines, an all-time high of 158.2 million passengers, or 2.59 million per day, are expected to take to the sky between Mar 1 and Apr 30. If the projection is spot on, this will be 4.3% higher than the total number of passengers who flew during the same period last year.

Because of this record uptick in air travel, airline companies are currently adding 129,000 additional seats per day this spring to accommodate 106,000 additional passengers. Needless to say, airline companies will now see higher revenues due to a rise in travel volume.

A4A Vice President and Chief Economist John Heimlich, by the way, confirmed that “low fares and abundant air service continue to attract a record number of travelers to the skies.” Unemployment level at low levels and increase in consumer spending are surely driving record air travel.

Lest we forget, the airline industry has pumped in almost $121 billion in the last few years to enhance passenger experience. New airplanes, value-added facilities, free in-flight entertainment options, advanced security and ground-breaking technology are driving demand for air travel across the board. Banking on such positives, it will be prudent to take a look at these red-hot airline stocks that are seeing the maximum upside.

SkyWest

SkyWest, Inc. SKYW, through its subsidiaries, operates a regional airline in the United States. It flaunts almost 500 aircraft connecting millions of passengers every month to more than 250 destinations across the United States. SkyWest’s outlook continues to improve as the company gets rid of its under-performing assets and focuses more on regional planes.

SkyWest currently sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for current-year earnings has moved 5.1% north in the past 60 days. 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 is 17.5%, in contrast to the Transportation - Airline industry’s projected decline of 42.3%. The company has outperformed the broader industry so far this year (+20.5% vs +2.6%).

Alaska Air Group

Alaska Air Group, Inc. ALK, through its subsidiaries, provides passenger and cargo air transportation services. The Seattle, Washington-based company is likely to come up with strong unit revenue growth in FY20, which in turn will boost profit margins.

The fifth-largest airline in the United States currently has a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for current-year earnings has moved up 0.5% in the past 90 days.

The company’s expected earnings growth rate for the current year is 41.7%, more than the Transportation – Airline industry’s projected rise of 14.2%. Shares of the company, by the by, has recovered so far this year after losing 31% in 2017 and 2018.

Spirit Airlines

Spirit Airlines, Inc. SAVE provides low-fare airline services. The company operates approximately 600 daily flights to 72 destinations in the United States. This ultra-low cost airliner is poised to gain in the near term mostly on an increase in non-ticket revenue per passenger, better cost control, and increase in operational efficiency and improvement in IT capabilities.

Spirit Airlines currently has a Zacks Rank #3. The Zacks Consensus Estimate for current-year earnings has moved 0.2% north in the past 60 days.

The company’s expected earnings growth rate for the current quarter is 104.6%, in contrast to the Transportation - Airline industry’s projected decline of 42.3%. The company has outperformed the broader industry over the past year (+40.8% vs -21.6%).

Southwest Airlines

Southwest Airlines Co. LUV operates a passenger airline that provides scheduled air transportation services in the United States and near-international markets. The company’s initiative to not charge passengers for extra luggage is lending them a competitive advantage. A strong balance sheet and deployment of capital in a disciplined manner also continue to drive higher return on capital.

Southwest Airlines currently has a Zacks Rank #3. The Zacks Consensus Estimate for current-year earnings has moved up 0.6% in the past 60 days.

The company’s expected earnings growth rate for the current quarter is 10.7%, in contrast to the Transportation - Airline industry’s projected decline of 42.3%. The company has outperformed the broader industry on a year-to-date basis (+7.2% vs +2.6%).

American Airlines Group

American Airlines Group Inc. AAL, through its subsidiaries, operates as a network air carrier. It provides scheduled air transportation services for passengers and cargo.

American Airlines witnessed an abysmal 2018, with shares plummeting 38% throughout the year. However, with such low prices, the company becomes an attractive buying opportunity. And why not? The company posted adjusted earnings per share of $1.04 in the fourth quarter that beat the consensus expectation for $1.01. Moreover, its guidance for 2019 earnings per share was $5.50 to $7.50, higher than the Street estimate.

American Airlines currently has a Zacks Rank #3. The Zacks Consensus Estimate for current-year earnings has jumped 6.6% in the past 90 days. The company’s expected earnings growth rate for the current year is 30.8%, higher than the Transportation - Airline industry’s projected rise of 14.2%.

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?

Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.

See Latest Stocks Today >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
SkyWest, Inc. (SKYW) : Free Stock Analysis Report
 
Alaska Air Group, Inc. (ALK) : Free Stock Analysis Report
 
Southwest Airlines Co. (LUV) : Free Stock Analysis Report
 
Spirit Airlines, Inc. (SAVE) : Free Stock Analysis Report
 
Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
 
American Airlines Group Inc. (AAL) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research