Top Airline Stocks

The airline industry is composed of companies that offer a variety of air transportation and travel services for consumers and cargo. Services include flight transport, aircraft leasing, hotel booking, car rentals, and travel management services. Some big names in the U.S. airline industry include Southwest Airlines Co., Delta Air Lines Inc., and United Airlines Holdings Inc.

The COVID-19 pandemic brought air travel to a near-halt. However, it is roaring back as global economies reopen and the effects of the pandemic begin to fade. Both leisure and business flights have surpassed pre-pandemic levels this year. However, surging fuel costs are weighing on airlines' earnings.

Airline stocks, as represented by the U.S. Global Jets ETF (JETS), an airline exchange-traded fund, have underperformed the broader market. JETS has provided a total return of -20.2% over the past 12 months, below the -9.8% total return of the S&P 500 Index.

Here are the top three airline stocks in the categories of best value, fastest growth, and best performance. The market performance numbers above and all statistics in the tables below are as of Sept. 14, 2022.

Best Value Airline Stocks

These are the airline stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows that you’re paying less for each dollar of profit generated.

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• Air Transport Services Group Inc.: Air Transport Services Group provides aircraft leasing as well as cargo and passenger air transportation services. It also offers related services to domestic and foreign air carriers. The company reported Q2 2022 earnings on Aug. 4. Net earnings fell year-over-year (YOY) on sizable revenue growth. Strength in freighter leasing was offset by a significant increase in operating expenses.
• SkyWest Inc.: SkyWest offers airline services through its subsidiary SkyWest Airlines and aircraft leasing services through its subsidiary SkyWest Leasing. The company flies travelers to destinations throughout North America.
• Copa Holdings SA: Copa Holdings is a Panama-based provider of airline passenger and cargo services. The company provides scheduled flights to countries in North, Central, and South America as well as the Caribbean. In mid-September the company reported monthly traffic statistics for August 2022. For that month, consolidated capacity as represented by available seat miles was 0.4% higher than August 2019. Revenue passenger miles was also slightly up relative to August 2019.

Fastest Growing Airline Stocks

These are the top airline stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly YOY percentage revenue growth and most recent quarterly YOY earnings per share (EPS) growth. Both sales and earnings are critical factors in the success of a company. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one figure or the other unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of more than 2,500% were excluded as outliers.

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• American Airlines Group Inc.: American Airlines Group is a holding company that, through subsidiaries, provides network air carrier services. It offers air transportation services for passengers and cargo. The company reported Q2 2022 earnings on July 21. Net income soared by more than 25-fold from the year-earlier quarter on substantial revenue growth. Strong domestic leisure travel and improving corporate and government revenue helped to fuel performance.
• Ryanair Holdings PLC: Ryanair Holdings is an Ireland-based ultra-low-fare airline. It provides short-haul, point-to-point routes across Europe and to select destinations in Africa and the Middle East. Because Ryanair's EPS went from negative to positive, it does not have an EPS growth figure in the table above.
  
• Air Canada: Air Canada is the largest Canada-based airline, providing scheduled passenger air service within Canada and internationally. On Aug. 2 the company reported Q2 2022 earnings results. Air Canada posted the narrowest quarterly operating loss since the start of the COVID-19 pandemic, as operating revenue grew by nearly fivefold YOY. Air Canada does not have an EPS growth figure in the table above because its EPS was negative.

Airline Stocks with the Best Performance

These are the three airline stocks that had the best returns or smallest declines in total return over the past 12 months of the companies we looked at.

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• Air Transport Services Group Inc.: See above for company description.
• Copa Holdings SA: See above for company description.
• Spirit Airlines Inc.: Spirit Airlines is a budget airline providing unbundled fares. Passengers can opt to pay for a variety of travel options often included in the cost of tickets for other airlines. It serves destinations in the U.S., the Caribbean, and Latin America. In the two-month period beginning June 5, Spirit operated over 44,000 flights with a completion factor of 99.2%, placing it among the best-performing airlines in terms of that metric for the summer.

Risks of Airline Stocks

Airlines and their stock prices are subject to many external forces that the companies have little control over, from oil prices to global pandemics to aircraft crashes. The airline industry is recovering from one of its worst crises to date as the coronavirus subsides, so investors are focused on which companies will do this best. Several airlines have gone bankrupt in recent years, while others barely break even by flying unprofitable routes at low prices. Now, airlines face a global recession that is likely to lower revenue across the sector.

Airline stocks tend to be cyclical, which means that airline share prices are largely affected by the national economies of their home countries. Profits and share prices of cyclical companies tend to follow the ups and downs of the economy; that's why they are called cyclical. When the economy booms, sales of goods—such as plane tickets—tend to thrive. On the other hand, cyclical stocks are prone to suffer in economic downturns. Airline stocks are also volatile, more so than ever during the pandemic years. Their beta is usually greater than 1, which demonstrates their riskiness and potential for reward to an investor.

Advantages of Airline Stocks

There are a few airlines that can actually be considered dominant and stable after years of industry consolidation, so this makes it easier to invest in them should you want to buy stock in individual companies rather than in an exchange-traded fund (ETF) or themed mutual fund.

Also, under normal conditions, airlines earn consistent revenue simply because there will always be a low season and a high season for traveling. Provided too many bad events don't occur close together, airline revenue will remain more or less stable.

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