Airline stocks are cyclical and previous recessions have led to many airlines failing and going bankrupt. It’s the question everyone asks: Is it safe to do this? invest Into airline stocks now? What are the best managed companies?
Benzinga takes a look at some of the best airline stocks so you know where you should put your money in the industry.
A quick look at the best airline stocks:
- United Airlines Holdings
- Alaska Air Group
- US Global Jets ETF
- Sun County Airlines
- Delta Airlines
- American Airlines Group Inc
- Southwest Airlines
Overview: Airline stocks
In short, US airline stocks were poor investments after the deregulation of the industry in the late 1970s. Deregulation allowed companies to compete aggressively for business. Changes in federal rules led to a pattern of boom and bust — big profits when times were good, and liquidation or bankruptcy when the economy took a turn for the worse.
Companies such as Trans World Airlines (TWA), Braniff International, and Eastern Air Lines disappeared during this era and investors suffered billions in losses.
The early 2000s were a period of consolidation and restructuring. The number of airlines decreased and the remaining companies competed and took over the balance sheets of the remaining companies. American Airlines Group merged with US Airways. Delta bought Northwest, and Southwest Airlines bought AirTran.
Today, the aviation industry helps drive about $2 trillion in economic activity.
Millions of jobs in the US aviation sector are now divided into three categories:
- regionswhich provides small aircraft services to secondary markets under the brands of full-service companies.
- Full service companies, Which fly internationally, serve multiple markets and have different cabin classes.
- Discounts, Which has fewer offers and covers fewer destinations.
Best online brokers for airline stocks
You can buy airline stocks through any online broker with access to the major stock exchanges. Powerful stock screening, analysis, and research tools are available for use by anyone who signs up.
You can apply custom filters to identify stocks that fit your investment goals. Most online brokerages will also offer commission-free trades.
Here are Benzinga’s favorites to consider if you’re trading airline stocks.
Features to look for in airline stocks
You’ll need to ask yourself about unit revenue, equity liquidity and total debt ratio before you pick airline stocks. Here’s what you need to know:
- Unit revenue It generally describes revenue statistics adjusted for the amount of flights an airline operates. Passenger revenue per available seat mile (PRASM) is the most common unit revenue statistic. It is obtained by dividing airline revenue from ticket sales by the number of available seat miles (ASMs).
Ticket sales revenue typically rises and falls with air traffic. A higher PRASM is better because it means the airline squeezes more revenue from each unit of capacity.
Revenue per available seat (RASM) is an important evaluation metric and takes into account all revenue sources. You should consider this for low-cost carriers that often rely on ancillary (non-ticket) revenue to drive sales.
- Stock liquidity It refers to how quickly shares of a stock can be bought or sold without significantly affecting the stock price. Airline stocks with low liquidity can be difficult to sell and lead to huge losses if you are unable to relinquish the shares when necessary.
- Total debt ratio It is a great way to understand the financial structure of a company. It compares the company’s total liabilities against its total assets. Unlike the debt-to-equity ratio, the total debt ratio also affects short-term liabilities and assets. This ratio may help you evaluate whether the company will face financial difficulties in the future.
A company with a large debt ratio will likely incur higher interest payments. This will also reduce profits. The company may then have difficulty raising capital because investors may see a greater risk of bankruptcy. A large debt balance could be at risk of credit default if the market declines.
Furthermore, you should research the safety records of these airlines. Keep in mind that the number of major aviation accidents has decreased over time. At the same time, an airline’s safety record does not always include accidents and death tolls. Airlines that cannot afford to train their pilots are more likely to suffer from safety concerns, turbulent flights and poor landings. At the same time, you should look at each airline’s customer service record. Travelers around the world will withdraw from airlines that have a poor track record of customer service; look at the cancellations that occurred with Southwest Airlines in late 2022 and early 2023.
Fly with confidence in the aviation industry
The future of the aviation industry remains unclear. Some traders expect further declines and want to exploit this opportunity to sell shares of airlines and aircraft manufacturing companies. However, the worst may be behind us, creating an opportunity to buy airline stocks at a significant discount.
Many airline stocks have lost significant value, so the risk-reward ratio is attractive if stocks regain their previous price levels with the promise of federal relief in coronavirus aid.
Do your homework and avoid companies with weak operations and balance sheets. Demand for travel is expected to rise, so there is plenty of room for upside in the foreseeable future.
And if you’re in the market for cheap stocks, take a look at our stock lists Stocks are under $20, Stocks are under $10 And even Stocks are under $5.
Frequently asked questions
S
Why are people optimistic about airline stocks?
A
Many people are bullish on airline stocks because they believe the worst is behind us regarding the coronavirus.
S
Are airline stocks cyclical?
A
Yes, airline stocks are considered cyclical stocks.
S
What are the best airline stock brokers?
A
Benzinga’s list of preferred airline stock brokers can be found in the list above.
Related content:
