Bull Market Takes Flight For Airline Stocks As Rosier 2024 Outlook Clears Wall Street's Last Hurdles

Stocks in the airline industry, as tracked by the U.S. Global Jets ETF JETS, have surged more than 20% since early November. This underscores a new bull market phase, fueled by strong demand and optimistic future projections.

Earlier this year, airline stocks were riding high on the anticipation of a summer travel rebound. However, their ascent hit some turbulence in mid-July. Rising oil prices and fears of a global economic slowdown clouding the skies.

Compared to pre-pandemic levels of January-February 2020, the sector still trades at about a 40% discount. This offers substantial upside potential for investors looking for an industry yet to fully recover from the pandemic.

Chart: Airline Stocks Are 25% Higher Than 2023 Lows, Yet 40%+ Lower Than Pre-Covid Levels

Hawaiian Holdings Inc. HA was the top stock contributor to the recent airline industry rally. It experienced an astonishing 220% increase in its stock price in the past month, thanks to Alaska Air Group Inc. ALK’s takeover.

Southwest Airlines Co. LUV, Delta Air Lines Inc. DAL, and American Airlines Group, Inc. AAL all screened among the main contributors to the JETS rally, each witnessing a robust uptick of approximately 20% in their stock prices.

Sun Country Airlines Holdings Inc. SNCY observed above-average returns, up by 30% in the past month; Frontier Group Holdings Inc. ULCC, up 28% during the same period, and Embraer S.A. ERJ, which saw a 26% boost.

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Airlines Industry Outlook For 2024 Is Positive

The International Air Travel Association (IATA) has painted an optimistic picture for the industry.

In its latest outlook, the association revealed that global demand for air travel remained robust in 2023, with the industry steadily nearing 2019’s passenger traffic levels, buoyed by strong pent-up demand.

A key industry metric, revenue passenger kilometers (RPKs), soared 40.1% in the first nine months of 2023 compared to the same period last year. Capacity utilization reached 82%, aligning with pre-pandemic levels.

Passenger revenues are projected to hit $642 billion in 2023 — a striking 47% increase from 2022, and 7% above 2019 levels. Revenues for next year are forecasted to grow by 9%, reaching 15% above 2019 figures.

“A complete recovery seems imminent, dependent on the restoration of international connectivity, particularly in the Asia Pacific region,” IATA noted.

However, the industry’s profitability remains delicate. Airlines face challenges from economic and geopolitical uncertainties, supply chain disruptions, and regulatory costs as they strive for better financial health.

Long-term forecasts indicate a 3.4% annual growth in air travel passengers, adding nearly 4 billion new passengers by 2040. “Air transportation is an extraordinarily resilient industry, capable of quickly recovering from almost complete shutdowns,” IATA commented.

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