3 reasons airline stocks are a buy right now

Key Points

• American and Delta Airlines show bullish chart patterns with potential moving-average crossovers.
• Analysts are maintaining buy ratings on airline stocks while recognizing challenges ahead. 
• Despite expected earnings declines at some airlines in 2024, overall industry profitability is forecast to rebound in 2025.

American Airlines Group Inc. NASDAQ: AAL is pulling back after its January 25 post-earnings gap higher. However, Wall Street sees reasons to buy not only American Airlines but other stocks in its industry.

Delta Air Lines Inc. NYSE: DAL, which reported earnings on January 12, and United Airlines Holdings Inc. NASDAQ: UAL, which reported on January 19, show the same chart action as American. 

Guidance beating analysts' views

All three stocks rallied after American beat Wall Street forecasts on the top and bottom lines. American's guidance came in ahead of forecasts.

The company announced on January 31 that it would lay off 656 customer service workers, citing the counterintuitive reason that the move would improve service. 

News of corporate streamlining often results in a stock moving up, but American ended the January 31 session down 2.06%. 

The stock found support at its 200-day moving average, which is currently trading above the shorter-term 50-day line, which you can see on the American Airlines chart. 

Here are some indications that airline stocks may be buy candidates.

Bullish moving-average crossovers

In addition to the America Airlines chart showing support at its 200-day line, it indicates a bullish moving average crossover may be in the works.

The Delta Airlines chart shows similar action.   

When the 50-day moving average crosses above the 200-day moving average, it signals a bullish trend reversal. This crossover suggests shorter-term momentum is gaining strength compared to the long-term trend. That often precedes more upward price movement. 

The airline industry as a whole has shown erratic trade, but that's nothing new. 

An easy way to track the price action for the industry as a whole is by using the U.S. Global Jets ETF NYSEARCA: JETS, which tracks an index of airline companies globally, with an emphasis on domestic passenger airlines. 

The JETS ETF is up 25.75% in the past three months but is down on a one-year and three-year basis. The U.S. Global Jets ETF chart is also close to its 50-day line, crossing above its 200-day. 

Analyst upgrades

American Airlines analyst forecasts show several upgrades or price target increases after the company's earnings report. Some of the biggest investment banks, including Citigroup, Barclays and JPMorgan Chase, boosted their outlook on the stock.

In a January 9 note, Bank of America analysts laid out challenges for the industry, including supply remaining ahead of demand, cost pressures and competition on international routes. 

However, with all that factored in, Bank of America maintained its buy rating on Delta. You can see analysts' consensus forecast of "buy" on MarketBeat's Delta Air Lines analyst forecast page. 

Bank of America also upgraded United to "buy," citing revenue growth that's outperformed the broader airline industry. 

Meanwhile, Morningstar analyst Nicholas Owens said American and other airlines are doing a better job selling tickets directly to leisure travelers through apps and Web purchases as business travel buying habits change. 

As this process unfolds, Morningstar said, "We expect them to find new ways to attract and reward brand-loyal frequent travelers willing to pay for more comfortable experiences."

Airlines' earnings are growing 

As a whole, airline industry earnings are forecast to grow this year. 

According to the International Air Transport Association, the airline industry outlook was upgraded to $25.7 billion in profits this year. 

According to the organization, revenue and available flights are projected to surpass 2019 levels, meaning the industry will be fully recovered from the pandemic.   

Passenger revenues are expected to reach $717 billion, a 12% increase from 2023. 

Although American Airlines is expected to post an earnings decline this year, growth is forecast to rebound in 2025 by 37%.

United Airlines earnings are also seen declining this year but growing by 23% next year to $11.64 a share.

Southwest Airlines Co. NYSE: LUV earnings are expected to grow by 2% this year and another 41% in 2025.

Wall Street sees Delta Air Lines earnings increasing by 3% this year and by another 16% in 2025.

The profitability of those companies is likely to be a driver of price gains, especially as revenue streams stabilize after the pandemic disruption.