Airline stocks have flown into severe broader market turbulence in December, but the "fasten seatbelt" sign may be about to be turned off heading into 2019.
According to the International Air Transport Association (IATA), net income across the airline industry should jump 10% in the year ahead thanks to reduced jet-fuel costs and continued modest global economic growth. "We had expected rising costs would weaken profitability in 2019, but the sharp fall in oil prices and solid gross domestic product (GDP) growth projections have provided a buffer," Alexandre de Juniac, the association's CEO, told Bloomberg. Although upbeat, the IATA warned that trade wars and Brexit chaos could limit growth.
Those who want to trade airline stocks should consider these three industry leaders that appear to have landed at crucial support levels. All three are among the top five holdings in the 34-stock portfolio of U.S. Global Jets ETF (JETS). The exchange-traded fund has lost 15% this year, against the 7.68% drop in the S&P 500 index.
Delta Air Lines, Inc. (DAL)
Founded in 1924, Atlanta-based Delta Air Lines, Inc. (DAL) provides air transportation for passengers and cargo in the United States and internationally using a fleet of over 800 aircraft. Deutsche Bank upgraded the airline's stock from hold to buy after the company topped analysts' third-quarter earnings and revenue expectations. Trading at $50.41, with a market capitalization of $34.45 billion and offering a 2.92% forward dividend yield, Delta stock is down 12.06% year to date (YTD), outperforming the industry average return by nearly 7.5% over the same period as of Dec. 27, 2018.
Delta's share price has traded within a 20-point range throughout most of 2018, making clear swing highs and swing lows in the process. After selling off in tandem with the broader market this month, the stock printed a reversal candlestick in Wednesday's trading session at the $48 level – finding key support from the February and July swing lows. Traders who go long could place a stop-loss order beneath yesterday's low and aim to take profits between $54 and $56, where the price may find resistance from the 200-day and 50-day simple moving averages (SMAs) and horizontal line price action.
United Continental Holdings, Inc. (UAL)
United Continental Holdings, Inc. (UAL), with a market cap of $22.83 billion, operates more than 4,000 flights per day to five continents through its fleet of 1,262 aircraft. The Star Alliance member airline's third quarter profit grew by nearly 30%, despite rising fuel costs. As of Dec. 27, 2018, United stock has provided a soaring 24.33% YTD return, outperforming the S&P 500 by more than 30% over the same period.
United's chart shows three clear pullbacks in 2018 as its share price trended higher. December's current retracement of 13.34% found a confluence of support from a horizontal line that connects the January swing high and October swing low as well as the rising 200-day SMA. Those looking to trade the stock could set a profit target at the Dec. 3 high of $97.85 and place a stop below the $79 support area. Consider moving the stop to the breakeven point if the price rises to the 50-day SMA.
American Airlines Group Inc. (AAL)
Headquartered in Fort Worth, Texas, American Airlines Group Inc. (AAL) offers passenger and cargo air transportation services. The company, with a $14.87 billion market cap, operates a fleet of roughly 950 aircraft that services 350 destinations in approximately 50 countries. Although attractively valued with a forward price-to-earnings ratio of just 6.2, American Airlines stock has underperformed other major airlines stocks this year, falling over 40% YTD as of Dec. 27, 2018.
American Airlines shares have trended lower throughout most of 2018 but staged an 8.65% reversal Wednesday to close above October's swing low. Swing traders who open a long position at the current price should aim to book profits on a retracement to the $40 level, where the price finds resistance from a 10-month downtrend line and the 200-day SMA. Stops could sit under yesterday's bullish engulfing candlestick.