The airline industry is one sector that many investors typically avoid. This is mainly because both airlines and aircraft manufacturers require large amounts of capital, despite producing tiny profit margins. Even legendary investor, Warren Buffett avoids making investments in airline stocks. In fact, he famously referred to them as a ‘‘bottomless pit’’ at the Berkshire Hathaway annual general meeting in 2007. There Buffett stated, ‘‘Investors have poured their money into airline stocks and airline manufacturers for 100 years with terrible results. It’s been a death trap for investors.”
While many stocks in the airline industry produce disappointing returns, there are a few that have been winners for their shareholders. Below we will look at three stocks that have outperformed both the Standard and Poor's 500 Index (S&P 500), which realized a five-year return of 61.78%, and the NYSE Arca Global Airline Index, which had a total return of 171.43% over the last five years.
Alaska Air Group
With a market capitalization of just more than $10 billion, Alaska Air Group’s (ALK) stock is the best-performing stock in the entire passenger airline industry. Between the period, Dec. 17, 2010, to December 11, 2015, the company’s stock price rose from $14.37 to $82.77. This equates to a five-year cumulative return of 476%.
Alaska Air’s history dates back to 1932 when its founder, Mac MaGee, began offering flights between Anchorage and Bristol Bay, Alaska in a three-seater aircraft. Fast forward to more than 83 years, Alaska Air serves as the parent company for two leading airlines: Alaska Airlines and Horizon Air.
In 2014, Alaska Air reported $5.3 billion in total revenue and a net profit of $605 million. According to the company’s third quarter filing for 2015, net profit was up 19% when compared to the previous quarter.(For more, see: The Industry Handbook: The Airline Industry.)
Hawaiian Holdings (HA) is another passenger airline company that delivered extraordinary returns to its shareholders over the last five years. From December 2010 to December 2015, the company’s stock realized a total increase of 370%. In the last twelve months alone, Hawaiian Holdings has been up by more than 57%. Based in Honolulu, Hawaii, Hawaiian Holdings operates the state’s largest airline, Hawaiian Airlines, which carries an average of 10 million passengers a year across the United States and Asia.
As of Dec. 11, 2015, Hawaiian Holdings had a market capitalization of a little more than $2 billion. The company reported $2.3 billion in gross revenues and net income of $68.9 million at the end of 2014. During that same year, the company had 5,380 employees.
Between Dec. 18, 2010, to Dec. 12, 2015, Delta Airlines (DAL) saw its stock rise by 295%. The company is a Georgia-based airline that currently operates 5,400 flights on a daily basis. These flights travel to 64 countries, across six continents.
Delta has surely come a long way since its founding in 1924, today the company is the nation’s oldest commercial airliner to be still in existence and has a market valuation in excess of $40 billion.
Delta’s subsidiaries include Endeavour Air and Compass Airlines. In a joint venture with Virgin Group, Richard Branson’s investment vehicle, Delta also owns a 49% stake in the British airline Virgin Atlantic. As of Dec. 11, 2015, the company’s dividend yield was 1.10% when compared to the closing stock price of $49.28. (See also, 4 Utility Stocks that Outperformed Since 2010.)
The Bottom Line
For the most part, airline stocks do not provide dazzling returns for their shareholders. With that being said, there are quite a few airliners that have outperformed the S&P 500. These stocks include Alaska Air Group, Hawaiian Holdings, and Delta Airlines.