Airline stocks are making a comeback as the summer travel season gets underway.
But there are a couple other important trends to keep in mind that make this a good time to get in.
When prices are even slightly lower, it’s a boost to their margins.
And smart airlines are buying fuel in the forward markets but depending on their exposure, it may hurt them to have a lot of fuel under contract at prices just a month ago.
Getting it right is a tricky business. But lower energy prices and an expanding U.S. economy are helping.
The second big trend is rising travel in Asia, China in particular. An expanding middle class — remember China’s “slow” growth now is a staggering 6.5% GDP — means more travel options, inside and outside China.
The 10 best airline stocks to buy right now haven’t been straight shots to the moon, but they are good buys now as these trends all gain traction simultaneously.
Best Airline Stocks to Buy: Skywest (SKYW)
Skywest, Inc. (NASDAQ:SKYW) provides regional jet service around North America and the Caribbean, primarily out of the Midwest and West.
Basically, it is one of the leading carriers that took over the regional flights that the big airlines spun out to be able to operate more profitably. SKYW works with most of the major airlines into or out of smaller markets.
As air travel once again picks up, and oil prices start to move lower, this is a good opportunity for SKYW to take advantage of rising demand and lower input prices. That grows margins.
The stock is up 66% in the past year and we’re getting into another good time for the company. Also, SKYW is only up about 7% year to date, so it has consolidated and is ready for another leg up.
Best Airline Stocks to Buy: China Southern Airline (ZNH)
China Southern Airline Co Ltd (ADR) (NYSE:ZNH) is, as its name implies, headquartered in southern China. It operates both nationally and internationally, providing passenger, mail and freight services to all the locations. It also has a travel and tourism division.
With rising wages and more people leaving their far-flung villages to get jobs in the big Chinese cities — and abroad — the demand for travel has grown and will continue to grow.
For people who moved for work, they have more money to go back home to visit as well as travel to places for holidays. That wasn’t something that was very common in decades past. There is a new generation of flyers, and in a country of 1.4 billion people, that is a big, long-term trend.
Best Airline Stocks to Buy: China Eastern Airlines (CEA)
China Eastern Airlines Corp. Ltd. (ADR) (NYSE:CEA) is similar to its national competitor ZNH, but goes back a bit further, founded in 1988.
CEA is based out of Shanghai, which makes its home market built around China’s international financial center. It is also a transitional airline for travelers coming from abroad and heading for meeting in the city, and then out to plants and other cities for business.
The story for China and Asia remains the big pull here. CEA stock is up about 33% in the past year, with about 8% of that coming in 2018. The on-again-off-again trade war with the U.S. has been slowing down its growth, but there is plenty to be had, regardless of what happens with U.S. trade.
Best Airline Stocks to Buy: Gol Linhas (GOL)
Gol Linhas Aereas Inteligentes SA (ADR) (NYSE:GOL) is a Brazilian airline that operates domestically and across Latin America. It provides passenger service as well as logistics services for freight.
The stock is off nearly 20% year to date. However, it’s still up 48% for the year. This is the reality of investing in emerging markets.
Brazil was doing well until its economy took a hit a couple months ago. As the largest economy in South America, this tends to frighten investors since they know that things go bad quickly (and vice versa). Also, the turmoil in Venezuela still has no end in sight, which doesn’t help.
But as e-commerce takes hold in Latin America, GOL will likely be a major player delivering packages. And it’s expanding its passenger routes successfully.
Best Airline Stocks to Buy: LATAM Airlines (LTM)
LATAM Airlines Group SA (ADR) (NYSE:LTM) is a Chilean airline that was founded in 1929.
Year to date, LTM stock is off 13%. In the past 12 months, it’s up about 7%. Emerging market stocks are like this. The upside is great when it’s running, but the downside can be equally significant.
It’s also a matter of perspective. In the past three years, LTM is up 42%. What is important here is the longer term trends, not the weekly news cycles.
Chile has one of the strongest economies in South America, and as the global economy expands, so will its fortunes. Also, because it has a significant stake in industrial commodities, a boost in global growth will be a big boost for it.
Best Airline Stocks to Buy: Ryanair (RYAAY)
Ryanair Holdings plc (ADR) (NASDAQ:RYAAY) has become the quintessence of the modern low-cost carrier. It’s headquartered in Ireland and serves the British Isles, continental Europe and Morocco.
It specializes in point-to-point (ie, no connecting flights), short-haul routes for incredibly cheap prices. Basically it’s the ultimate no-frills airline that operates more like a flying bus than a traditional airline.
This model was revolutionary, and so were RYAAY’s returns. But now, many larger airlines have spun off divisions to compete or simply gone almost as no-frills to gain market share.
However RYAAY is still the one to beat. And as the European economy picks up, and the euro remains cheap relative to the British pound and the U.S. dollar, RYAAY should see business continue to grow.
Best Airline Stocks to Buy: Azul SA (AZUL)
Azul SA (ADR) (NYSE:AZUL) started in 2008, just as the global economy was rolling over. For an airline that is based on a more luxury experience rather than a bare-bones one, this was tough timing.
According to its website, AZUL is still the third-largest airline in Brazil and now offers nonstop flights to the U.S., Europe and several Latin American cities.
The concept for the airline is valid, especially in countries where it is more the haves and the have-nots, rather than a robust middle class. AZUL is perfect for business travel both domestically and internationally.
And with the global economy back in action, growth in AZUL is sure to follow.
Best Airline Stocks to Buy: Avianca Holdings (AVH)
Avianca Holdings SA (ADR) (NYSE:AVH) is the national airline of Colombia. But over the years, it has become much more than that.
It now owns significant operations in Central America and Ecuador as well. All these routes, as noted in AVH’s April traffic numbers — all airlines report their traffic numbers and metrics on a monthly basis — are growing.
As a first generation immigrant community in the U.S. gets older and more established, and the next generation begins to become a part of the economy, the more money they have to travel back home for holidays and family.
Also, tourism throughout Latin America will begin to pick up in coming quarters, coupled with lower energy prices. If you’re looking for Andean nation and Central American stock pick, this is it.
Best Airline Stocks to Buy: Allegiant Travel (ALGT)
Allegiant Travel Company (NASDAQ:ALGT) is a U.S. low-cost carrier that has an interesting niche in the bargain air-fare business.
It specializes in primarily leisure travel from cold-weather locations direct to warm weather locations from smaller airports that are usually only served by connector flights. That means you can get on a plane in South Bend, Indiana and get off in Fort Lauderdale, Florida. There are no legs to a big hub where you have to switch planes and then head to your final destination.
The no-frills airline is definitely catching on, especially as bigger carriers can’t compete on these smaller routes. It’s also showing up in ALGT’s passenger numbers. In its April passenger numbers, all (passengers, revenue passenger miles, departures) were all up double digits compared to last April.
This, along with a growing economy and lower fuel prices, is a good sign.
Best Airline Stocks to Buy: Delta (DAL)
Delta Air Lines, Inc. (NYSE:DAL) is the only major carrier to make the top 10. To a certain extent, given some of the stories about the major carriers have been treating passengers, this isn’t much of a surprise.
But this is also one of those things where when you’re in the air as much as these carriers are — DAL is the No. 2 airline in the U.S. market — sometimes things go wrong. And it’s easier to blame a brand than an individual in some of these cases.
Regardless, DAL has always been focused on delivering for shareholders. And it did so again in Q1, coming in ahead of analysts’ expectations.
It’s also looking to diversify its revenue streams into more consistent revenue streams. It’s looking at expanding its co-branded credit card lines as well as its cargo business. Both were strong growers in Q1.
Also, given the fact that DAL has significant resources committed to getting the best prices on fuel, lower oil prices will be a big help moving forward, too.
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Source: Investor Place