With air travel on the rise, buying airline stocks in 2024 could be a smart move. The resurgence in global travel offers opportunities for those looking at top airline stocks.
The airline sector is crucial to the global economy as it connects destinations worldwide, facilitates travel and trade, and provides excellent mid-air hospitality. In 2023, the industry generated $896 billion in revenue, which is expected to rise to $964 billion by 2024.
As the industry grows, acquiring shares in leading airlines could exemplify strategic investing for the upcoming year(s). We’ve created this handy beginner’s guide to help you better understand trading and investing in the airline sector and identify some of the best airline stocks to buy in 2024.
How to Trade or Invest in Airline Stocks – Quick Guide
- Step 1: Research airline companies. Determine which types of airlines you want to invest in and research the companies that fit your outlook. If you’re bullish on airlines but would rather not choose among individual stocks, there are also Airline ETFs.
- Step 2: Open a brokerage account. Once you've located your ideal airline investments, you'll need a brokerage account. Trading lets you speculate on rising or falling prices via CFDs, investing lets you take direct ownership of Airline stocks.
- Step 3: Decide how much capital to put toward airlines. Airlines have lagged behind the market in recent years, but past performance doesn't predict future performance. Still, you never want to put too much capital into a single industry, especially one with a track record like the airlines.
- Step 4: Buy your shares and monitor your investments. Airline stocks, especially mega-cap stocks, are easy to find on significant brokerages like CAPEX.com. Only add to your portfolio shares of the airline companies you research and ensure they mesh with your clear goals and risk appetite.
Or, if you want to get a greater understanding of the airline sector before you take a position, continue reading our full guide.
Why Airline Stocks?
Airline businesses are known for operating on thin profit margins, particularly vulnerable to fluctuations in passenger demand and fuel costs. Despite the challenges, the airline industry has rebounded post-pandemic, adapting to evolving passenger preferences and diversifying revenue streams.
This adaptation has led to a stabilization in stock prices, improved profitability, and increased dividends for many airlines. Notably, some airlines have successfully monetized their loyalty programs, contributing significantly to their overall value.
Given Warren Buffett's past losses on airline stocks, it's natural for cautiousness among average investors. However, there's a shift in perception. While the sector historically struggled to match its cost of capital, emerging trends offer potential. Despite turbulence, recent shifts suggest a brighter outlook for investors willing to navigate carefully.
In 2022, travel demand spiked back up, resulting in a summer filled with clogged airports and misplaced luggage. Demand has continued to rise even in 2023. As a consequence, airline revenue is at an all-time high, and several of the biggest carriers have generated a profit for the first time since the pandemic.
An increase in passenger traffic is correlated with a favorable investment climate. Domestic air traffic is predicted to increase by 8–13 percent in FY2024, international traffic has also surpassed pre-pandemic levels and is about to peak. which makes the option to buy airline shares an attractive option for 2024.
Types of airline stock
Airlines are categorized into three groups - major airlines, national airlines and regional airlines. The amount of revenue an airline generates defines how it is ranked.
Major airlines
The biggest companies in the sector make up this airline group. An airline would be considered in this category if its yearly revenue exceeded £1 billion. Among the corporations classified as both blue-chip stocks and significant airlines are Delta Air Lines, United Airlines, and Southwest Airlines.
National airlines
Compared to giant airlines, these businesses typically have a smaller fleet and make between £100 million and £1 billion in revenue annually. These airlines may include foreign destinations in their route network and serve their respective countries' regions.
Regional airlines
These airlines service regions within a country. This segment of the industry is growing quickly and is separated into three groups, large, medium and small regional airlines with under 61 seats.
Fundamentals of investing in airline stocks
Here are some important metrics to consider when investing in airline stocks. However, these are just a few factors investors use to evaluate airline stocks, but don't limit your research to just these three.
Debt-to-equity ratio
A company's total debt (including long-term and short-term, plus fixed payments) divided by shareholders' equity is called its risk rate. While a high debt-to-equity ratio doesn't always indicate trouble, businesses with lower ratios are better able to meet their obligations in the event of an interruption.
Price-to-earnings ratio
P/E ratios calculate a stock's price in relation to its earnings. A public firm receives greater value for every dollar of earnings the lower its price-to-earnings ratio. Use a P/E calculator to perform your own calculations.
Revenue per available seat mile (RASM)
This measure is exclusive to the airline sector. A 50-seat aircraft travelling 500 miles would have five thousand available seat miles. "Available seat mile" refers to each mile flown by each seat on the aircraft. Airlines use the Revenue-Averaging System (RASM) to determine how much money they make per seat on their fleet.
Factors influencing airline stock prices
Finding the best airline stocks to invest in requires a different evaluation than most stock research (see some of the best stocks to buy in 2024). Airlines face heavy regulation and unpredictable costs, and their stocks haven't always rewarded investors.
Company health
Overvalued airlines rarely make a good stock investment, so the first features you should look at are figures like enterprise value and debt-to-capitalization rate. Airlines always seem cheap when using the price-to-earnings ratio, or P/E ratio (share price divided by earnings per share), so that's not an ideal metric for finding the best airline stocks to buy.
Free cash flow
In addition to being subject to strict regulations and fuel prices, the aircraft business also has high capital equipment expenditures. Aircraft manufacturing is difficult, and maintaining, servicing, and cleaning them requires expensive equipment. A good place to start your stock analysis is with the free cash flow yield. Airlines experiencing cash flow issues could find it difficult to cover their operational costs.
Management
Ultimately, the reputation of airlines is not the best. There is rarely another industry where the public is as cynical as the aviation industry. Many airlines mishandle their finances and customer relations, which contributes to this in part. Make sure the company has a management team you trust before investing in airline stocks.
10 Of the Best Airline Stocks for 2024
With air travel above pre-pandemic levels and expected to rise in the summer, here are 10 of the best airline stocks to buy for 2024 according to market cap.
1. Delta Air Lines (DAL)
- Market Cap: $33.45 B
- P/E: 9.74
- Dividend Yield: 0.77%
With its headquarters located in Atlanta, Georgia, Delta Air Lines (DAL) is a prominent American airline that belongs to the legacy carrier category. Together with its regional affiliates and subsidiaries, such as Delta Connection, Delta is the oldest airline in the United States and the seventh oldest airline globally. With over 5,400 daily flights, it covers 325 destinations across 52 countries on six continents.
Delta Air Lines has a total shareholder equity of $11.2B and total debt of $19.2B, which brings its debt-to-equity ratio to 172.4%. Its total assets and total liabilities are $75.0B and $63.8B respectively. Delta Air Lines's EBIT is $6.1B, making its interest coverage ratio 7.5. It has cash and short-term investments of $4.5B.
Delta Air Lines is forecast to grow earnings and revenue by 0.7% and 2.5% per annum respectively. EPS is expected to grow by 1.4% per annum. Return on equity is forecast to be 28.2% in 3 years.
2. United Airlines Holdings (UAL)
- Market Cap: $17.00 B
- P/E: 5.92
- Dividend Yield: -
With its headquarters is located in Chicago's Willis Tower, United Airlines Holdings Inc. (UAL) is a leading airline holding corporation providing passenger and cargo services worldwide. Operating as United Airlines, Inc., it was formerly known as United Continental Holdings, Inc. United Airlines, with 948 planes and 92,795 personnel, is the third-largest airline globally. It was founded by William Boeing and came about due to the late 1920s and early 1930s airline and manufacturer mergers.
United Airlines Holdings has a total shareholder equity of $9.2B and total debt of $27.0B, which brings its debt-to-equity ratio to 294%. Its total assets and total liabilities are $71.9B and $62.7B respectively. United Airlines Holdings's EBIT is $5.4B, making its interest coverage ratio 6.1. It has cash and short-term investments of $14.0B.
United Airlines Holdings is forecast to grow earnings and revenue by 8.6% and 4.3% per annum respectively. EPS is expected to grow by 9.2% per annum. Return on equity is forecast to be 25.7% in 3 years.
3. Southwest Airlines (LUV)
- Market Cap: $16.06 B
- P/E: 32.3
- Dividend Yield: 2.68%
A significant US airline that uses a low-cost carrier business model is Southwest Airlines Co. With scheduled service to 121 locations in the US and 10 other countries, it is based in Love Field, Dallas, Texas, which is part of the Dallas-Fort Worth metroplex. More domestic travelers traveled with Southwest than with any other US airline. In terms of passengers carried, it is currently the third-biggest airline in North America.
Southwest Airlines has a total shareholder equity of $10.2B and total debt of $8.0B, which brings its debt-to-equity ratio to 78.2%. Its total assets and total liabilities are $36.0B and $25.8B respectively. Southwest Airlines's EBIT is $770.0M, making its interest coverage ratio -2.1. It has cash and short-term investments of $10.5B.
Southwest Airlines is forecast to grow earnings and revenue by 29% and 5.6% per annum respectively. EPS is expected to grow by 30.2% per annum. Return on equity is forecast to be 12% in 3 years.
4. International Consolidated Airlines (BABWF)
- Market Cap: $10.08 B
- P/E: 4.85
- Dividend Yield: -
Following the merger of British Airways and Iberia, International Consolidated Airlines Group S.A., or IAG, is an international airline holding company that was established in January 2011. IAG, which has its corporate headquarters in London, England, and its registered office in Madrid, Spain, is in charge of both airlines as completely owned subsidiaries. 55% of the new company's shares were awarded to British Airways' stockholders.
International Consolidated Airlines Group has a total shareholder equity of €3.3B and total debt of €16.1B, which brings its debt-to-equity ratio to 490.6%. Its total assets and total liabilities are €37.7B and €34.4B respectively. International Consolidated Airlines Group's EBIT is €3.7B making its interest coverage ratio 5.6. It has cash and short-term investments of €6.8B.
International Consolidated Airlines Group's earnings are forecast to decline at 1.6% per annum while its annual revenue is expected to grow at 4% per year. EPS is expected to decline by 2.8% per annum. Return on equity is forecast to be 34.5% in 3 years.
5. American Airlines (AAL)
- Market Cap: $9.08 B
- P/E: 5.60
- Dividend Yield: -
American Airlines In terms of revenue passenger mile and scheduled passenger carried, it is the biggest airline in the world. American operates a vast domestic and international network with about 6,800 flights each day to nearly 350 destinations in 48 countries, in conjunction with its regional partners and affiliates.
American Airlines Group is forecast to grow earnings and revenue by 31.5% and 4.4% per annum respectively. EPS is expected to grow by 31.1% per annum. Return on equity is forecast to be 160.4% in 3 years.
6. Lufthansa (LHA.DE)
- Market Cap: $8.40 B
- P/E: 5.29
- Dividend Yield: 4.64%
When it comes to passengers carried, Deutsche Lufthansa AG is ranked second in Europe, and by revenue, it is the fourth-largest airline worldwide. Founded in 1953, Lufthansa started operating in April of 1955. The Lufthansa Group owns a number of airlines in addition to running flights under its own name, such as Swiss International Air Lines, Austrian Airlines, Brussels Airlines, Discover Airlines, and Eurowings.
Deutsche Lufthansa has a total shareholder equity of €9.6B and total debt of €11.2B, which brings its debt-to-equity ratio to 117.3%. Its total assets and total liabilities are €47.4B and €37.8B respectively. Deutsche Lufthansa's EBIT is €1.5B making its interest coverage ratio 5.7. It has cash and short-term investments of €8.3B.
Deutsche Lufthansa is forecast to grow earnings and revenue by 9.2% and 5.3% per annum respectively. EPS is expected to grow by 9.2% per annum. Return on equity is forecast to be 15.9% in 3 years.
7. Qantas Airways (QAN.AX)
- Market Cap: $6.59 B
- P/E: -13.0
- Dividend Yield: -
Australia's flag carrier is Qantas Airways Limited. In terms of foreign flights, international destinations, and fleet size, it is the biggest airline in Australia and Oceania. With its November 1920 founding, Qantas is the oldest airline in the English-speaking world and the third oldest airline in the world overall. Qantas is one of the original airline members of the Oneworld alliance.
Qantas Airways has a total shareholder equity of A$117.0M and total debt of A$4.9B, which brings its debt-to-equity ratio to 4189.7%. Its total assets and total liabilities are A$19.3B and A$19.2B respectively. Qantas Airways's EBIT is A$2.5B, making its interest coverage ratio 17. It has cash and short-term investments of A$1.5B
Qantas Airways is forecast to grow earnings and revenue by 3.3% and 4.4% per annum respectively. EPS is expected to grow by 5.4% per annum. Return on equity is forecast to be 65.4% in 3 years.
8. Alaska Airlines (ALK)
- Market Cap: $5.41 B
- P/E: 33.9
- Dividend Yield: -
Major American airline Alaska Airlines is based in SeaTac, Washington, which is part of the Seattle metropolitan area. In terms of scheduled passengers carried, it ranks as the fifth-biggest airline in North America. Alaska provides a route network largely centered on connecting cities along the US West Coast to over 100 destinations, in collaboration with its regional partners Horizon Air and SkyWest Airlines.
Alaska Air Group has a total shareholder equity of $4.0B and total debt of $2.6B, which brings its debt-to-equity ratio to 64.5%. Its total assets and total liabilities are $14.8B and $10.8B respectively. Alaska Air Group's EBIT is $780.0M, making its interest coverage ratio 35.5. It has cash and short-term investments of $2.3B.
Alaska Air Group is forecast to grow earnings and revenue by 38.2% and 6% per annum respectively. EPS is expected to grow by 38% per annum. Return on equity is forecast to be 15.5% in 3 years.
9. EasyJet (EZJ.L)
- Market Cap: $4.48 B
- P/E: -
- Dividend Yield: 0.98%
Based at London Luton Airport, EasyJet plc is a low-cost airline group with British multinational status. EasyJet UK, EasyJet Switzerland, and EasyJet Europe are its affiliate airlines, and together they offer 927 routes in over 34 countries for scheduled domestic and international service operations. EasyJet plc is a component of the FTSE 100 Index and is listed on the London Stock Exchange.
easyJet has a total shareholder equity of £2.4B and total debt of £2.2B, which brings its debt-to-equity ratio to 89.6%. Its total assets and total liabilities are £10.9B and £8.5B respectively. easyJet's EBIT is £520.0M, making its interest coverage ratio 104. It has cash and short-term investments of £3.3B.
easyJet is forecast to grow earnings and revenue by 14.2% and 7.7% per annum respectively. EPS is expected to grow by 14.3% per annum. Return on equity is forecast to be 15% in 3 years.
10. Copa Holdings (CPA)
- Market Cap: $4.19 B
- P/E:11.6
- Dividend Yield: 3.23%
Panama's flag carrier is Copa Holdings. Tocumen International Airport serves as its primary hub, and its headquarters are located in Panama City. Copa is a Star Alliance member and a division of Copa Holdings. Under the names Wingo and Copa Airlines Colombia, the airline is owned by Copa Holdings, which also owns AeroRepública, a Colombian airline.
Copa Holdings has a total shareholder equity of $2.2B and total debt of $1.4B, which brings its debt-to-equity ratio to 65.3%. Its total assets and total liabilities are $5.2B and $3.0B respectively. Copa Holdings's EBIT is $830.0M, making its interest coverage ratio 9.7. It has cash and short-term investments of $801.2M.
Copa Holdings is forecast to grow earnings and revenue by 11.8% and 7.5% per annum respectively. EPS is expected to grow by 10.8% per annum. Return on equity is forecast to be 27.1% in 3 years.
There are also airline ETFs
If you'd rather not research individual companies, airline ETFs allow you to own a sizable portion of the industry. Some exchange-traded funds (ETFs) have a broad investment base in the travel industry, which covers restaurants, hotels, and other modes of transportation. The U.S. Global Jets ETF is the only exchange-traded fund that is specifically focused on airlines.
The only option to have pure exposure to a wide range of airlines without incorporating other travel and transportation securities is through the Jets ETF, which possesses assets of just $2 billion. In addition to several regional and low-cost airlines, JETS provides exposure to the main three American airlines.
There are more ETF possibilities available if you're ready to branch out into the broader transportation industry. The largest is the iShares U.S. Transportation ETF, which includes trucking, delivery, railroad, and ridesharing companies in addition to airlines. The SDPR S&P Transportation ETF (XTN) allocate more than 25% of their holdings to airlines.
How to add airline stocks to your portfolio
There are a few ways to invest in airlines. A traditional way is through buying and selling shares on a local stock exchange. This requires you to pay the full share value upfront, which can be a large sum of money to spend in one transaction.
An alternative method is to trade on margin via CFDs, which means you are only required to place a fraction of the full trade amount, known as a deposit, to gain exposure to the share market.
Our trading platform and mobile stock apps enable users to add airline stocks to your portfolio both ways. However, note that trading and investing are 2 different things, although there are similitudes.
Trading airline stocks
‘Trading’ lets you speculate on the price of a stock or other financial asset rising or falling using derivatives like CFDs. If you want to take a position on Airline stocks or ETFs without owning them directly, then CFDs might be for you.
Bear in mind that these are leveraged products, which means they enable you to get full market exposure for an initial deposit – known as margin. But, while leverage can increase your profits, it can also increase your losses.
Buying airline stocks
‘Investing’ means that you’re taking direct ownership of something with the aim to benefit from prices rising. You’ll be able to invest in the shares of individual companies that are involved in the airline sector, or in ETFs to get broad exposure to airlines.
Leverage isn’t available when you’re buying shares of stock, so you’ll need to commit the full cost of your position upfront. While this could increase your initial outlay, it also caps your maximum risk with the amount of money you paid to open your position.
Conclusion
Investing in airline stocks for 2024 presents an intriguing opportunity amidst the sector's recovery from pandemic-induced challenges. The industry's adaptability, evidenced by the exploration of new revenue streams and loyalty program monetization, signifies a potential shift toward sustained profitability.
By carefully evaluating factors such as route networks, financial health, and strategic initiatives, investors can identify airline stocks poised to weather uncertainties and potentially soar to new heights in 2024.
Free Resources
Before you start investing or trading Airline stocks, you should consider using the educational resources we offer, like CAPEX Academy or a demo trading account. CAPEX Academy has lots of free trading and investing courses for you to choose from, and they all tackle a different financial concept or process – like the basics of analyses – to help you to become a better trader or make more-informed investment decisions.
Our demo account is a suitable place for you to learn more about leveraged trading, and you’ll be able to get an intimate understanding of how CFDs work – as well as what it’s like to trade with leverage – before risking real capital. For this reason, a demo account with us is a great tool for stock investors who are looking to make a transition to leveraged trading.
Sources:
- Major Airlines of the World - Nations Online Project
- Largest airlines by market cap (companiesmarketcap.com)
- JETS - U.S. Global ETFs (usglobaletfs.com)
- Simply wall