The airline industry has always been known for being tough both for the airlines as well as for investors. Profit margins are largely razor-thin, most of the cost consumers pay for an airline ticket goes into fuel, salaries, taxes, maintenance, and the rest.
In particular, the global pandemic has been hard for the airline sector, border crossing closures, and travel restrictions kept airplanes grounded for the most part. International Air Transport Association (IATA) estimated that Covid-19 cost the global aviation industry more than $200 billion in losses from 2020 to 2022.
Recovery of air travel seems to be underway which is good news for the sector. IATA claims that 42% of annual passenger traffic recovered to pre-pandemic 2019 levels.
Picked for you
Though we are still in Q1 of 2022 it is a good idea to look at the top 3 stocks in the airline sector.
1. American Airlines (NASDAQ: AAL)
American Airlines comes with a top pedigree, by operating as the biggest airline not just in the U.S. but the entire world. It has been a difficult two-year period for the company since it burned through $6 billion of cash in 2020 during the Covid pandemic. Additionally, the Company accrued $25 billion in long-term debt.
These metrics weigh on the stock with the price moving between its 50 and 200-day Simple Moving Averages (SMAs) looking for a breakout above. The bounce between the lower and upper resistance areas is quite wide which is understandable due to the fear of additional closures due to Covid.
Wall Street analysts see the price of the stock to be in line with expectations with the highest price target being $31.50. The general consensus is a hold however notable research analysts such as Wolfe research have an overweight one stock.
2. Southwest Airlines (NYSE: LUV)
The largest discount carrier in the U.S. struggled to come out of the gates after the Covid pandemic with schedule and staffing issues. Loss accrued by the company was nearing $1.3 billion for 2021.
The company is now looking to put the turbulence of the previous year behind them, earning $5.05 billion of revenue making $0.14 earnings per share, as per its quarterly results.
With better business performance and staffing issues behind them, it is expected that LUV will fly into sunnier skies. The stock is moving between 50 and 200 SMA with a recent runup in price.
Analysts agree that the stock is a moderate buy with an average price of $50.14 which leaves another 9.48% of upside for the stock. The highest price of $62 is reflective of the company’s potential, its strong balance sheets, and expectations for LUV to take over the leading position in the U.S. airline industry.
3. Delta Air Lines (NYSE: DAL)
Delta was the first airline that reported a profit coming out of the pandemic, though a first in two years it still is a positive development.
Currently, the company is on a hiring spree onboarding 3,000 to 5,000 new employees combined with 9,000 they hired in 2021. Delta outperformed analysts’ expectations with the latest earnings report which is reflected in the stock’s performance.
It is looking to break out over 200 SMA and launch the stock further upwards. With predictions of a profitable 2022 and pent-up traveling demand, it could have all the ingredients to do it.
Analysts agree that the stock is a strong buy with an average price of $49.31, a potential increase of 24.41% from the current price of $39.72. The highest price analysts have on the stock is $67.
The airline industry is a tough one to predict, cyclicality is a common occurrence, and paying attention to the stocks and sector at all times is a must. On the other hand, companies that survived the pandemic showed that they can withstand challenging operating conditions without going bankrupt.
With such a hard-nosed pedigree, investors bullish on long-term demand for travel and the airline sector should keep a close eye on these stocks.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.