Free Trial

Southwest, American Descend as Delta, United in Holding Pattern

Airline stocks outlook

Key Points

  • Airline stocks Delta, United, and Copa remain resilient despite a broader industry swoon.
  • Bank of America recently slashed forecasts for the entire industry, based on higher fuel prices.
  • United and Southwest recently warned of higher fuel costs impacting profits.
  • Five stocks to consider instead of Alaska Air Group.
Remove Ads

Leisure travel is replacing still-sluggish business travel, and big investors like Warren Buffett’s Berkshire Hathaway Inc. NYSE: BRK.B are jumping on board, but airline industry stocks, as a group, have traded lower since July. 

However, despite a big industry-wide decline in August, stocks like Delta Air Lines Inc. NYSE: DAL, United Airlines Holdings Inc. NASDAQ: UAL and Panama-based industry leader Copa Holdings S.A. NYSE: CPA appear to have made soft landings. 

Those three stocks are finding support at or above their 200-day moving averages, suggesting that the selloff may be waning. 

But not all airline stocks are behaving the same: Southwest Airlines Co. NYSE: LUV, American Airlines Group Inc. NASDAQ: AAL and Alaska Air Group Inc. NYSE: ALK are trading below their 200-day lines. 

Fuel Prices Cutting Into Profit

One problem is plaguing the entire industry: Higher fuel prices. United and Southwest are among the airlines that guided toward high fuel costs that would cut into profits in the current quarter.

In early September, United raised its estimate for fuel costs to a range higher than its previous range, issued in July.  

Remove Ads

Southwest also guided toward higher fuel prices, and also said last-minute leisure-travel bookings came in near the low end of its views. 

The news about higher fuel costs wasn’t entirely a surprise. Bank of America recently slashed price targets of several airline stocks on the basis of those fuel cost increases.

In July, Bank of America analysts had already cast a shadow on airlines’ performances, citing lower ticket prices than pre-pandemic. The bank’s analysts also pointed out the trend of stronger international revenue, versus domestic revenue. They also noted that corporate travel is still at only 75% of pre-2020 levels. 

If you’re looking for airline stocks to invest in, there are some factors to consider. 

Airlines at the Whims of Many Factors

The airline industry’s revenue and profit growth are highly dependent on not just factors such as energy prices but also broad economic factors, as they reflect consumer spending patterns, business activities, and overall economic conditions. In a recession, if people are worried about their jobs, they will naturally cut back on leisure travel. 

An easy way to track performance of the airline industry as a whole is by using the U.S. Global Jets ETF NYSEARCA: JETS, which is down 11.28% in the past month. The ETF tracks 

Its top four holdings, each of which comprises 10% of fund holdings or more, are Delta, American, Southwest and United. It tracks the global airline industry, including not only commercial airlines, aircraft manufacturers, airport operators and Internet media and services related to airlines. 

Trickle-Down Effects

That’s important, because if higher fuel costs drag down airline prices, that could easily spread to related sub-industries. 

As airlines grapple with soaring fuel expenses and their profits shrink, as they’ve warned, they could increase ticket prices, slash flight routes and cut other services. Those moves, in turn, could deter air travel, which would trickle down to lower hotel and restaurant bookings. 

A slump in air travel could lead to aircraft manufacturers like Boeing Co. NYSE: BA and Airbus fetching lower orders, which could also affect aircraft component makers.

Additionally, as major employers, any layoffs or reduced hiring within the airline sector could have an influence over total unemployment rates. 

So that’s a way of saying that the health of the airline industry could have a domino effect on the broader economy.

But what do analysts expect? 

What Analysts See

Here are the consensus views of the big four U.S. airlines:

As of now, there’s not any reason to panic about the health of the airline industry over the coming months, especially as several of the bigger companies’ stocks are getting support above a key moving average. Others are not performing as well, and bear watching. 

Should You Invest $1,000 in Alaska Air Group Right Now?

Before you consider Alaska Air Group, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Alaska Air Group wasn't on the list.

While Alaska Air Group currently has a Buy rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

Reduce the Risk Cover

Market downturns give many investors pause, and for good reason. Wondering how to offset this risk? Enter your email address to learn more about using beta to protect your portfolio.

Get This Free Report
Kate Stalter
About The Author

Kate Stalter

Contributing Author

Retirement, Asset Allocation, and Tax Strategies

Like this article? Share it with a colleague.

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Alaska Air Group (ALK)
4.9632 of 5 stars
$49.24-2.2%3.05%16.15Buy$77.00
American Airlines Group (AAL)
4.8286 of 5 stars
$10.55-1.4%3.79%9.25Moderate Buy$19.30
Berkshire Hathaway (BRK.B)
0.8846 of 5 stars
$533.42+1.4%N/A10.78Moderate Buy$520.00
Copa (CPA)
4.8188 of 5 stars
$92.57-1.7%6.96%6.36Buy$153.29
Delta Air Lines (DAL)
4.988 of 5 stars
$43.62-0.5%1.38%8.18Buy$76.29
Southwest Airlines (LUV)
4.2062 of 5 stars
$33.63+0.1%2.14%46.70Reduce$32.54
Boeing (BA)
3.5512 of 5 stars
$170.66-1.5%4.82%-9.32Moderate Buy$195.68
U.S. Global Jets ETF (JETS)N/A$20.77-1.7%N/A11.31Moderate Buy$20.80
Southwest Airlines (LUV)
4.2062 of 5 stars
$33.63+0.1%2.14%46.70Reduce$32.54
Compare These Stocks  Add These Stocks to My Watchlist 

Remove Ads

Featured Articles and Offers

3 Bank Stocks Defying Market Turmoil—Cheap Options Trades!

3 Bank Stocks Defying Market Turmoil—Cheap Options Trades!

While tech giants are down, "boring" bank stocks are quietly outperforming. Find out how to leverage these banks' stability for significant gains!

Related Videos

Why Palantir’s Future Just Got a Massive Boost
7 Flying Car Stocks to Buy Before the Sector Really Takes Off
Archer Aviation: Sinking Now, Soaring Soon?

Stock Lists

All Stock Lists

Investing Tools

Calendars and Tools

Search Headlines

Remove Ads