US Airlines Set To Fly High In 2025, Analyst Says: 'Perfect Storm Of Tailwinds' Will Propel Industry Gains

The U.S. airline industry is gearing up for a blockbuster year in 2025, Morgan Stanley analysts say, predicting airline companies on the brink of what could be a “perfect storm of tailwinds that essentially propels the industry to make money.”

Equity analyst Ravi Shanker reiterated a bullish stance on the airlines industry in a Wednesday note.

The U.S. Global Jets ETF JETS has rallied 36% year-to-date, outperforming by about 9 percentage points the broader stock market as tracked by the SPDR S&P 500 ETF Trust SPY.

Premium Carriers Poised For Another Stellar Year

“We expect demand to remain resilient with volume growth,” Shanker said. Legacy carriers like United Airlines Holdings Inc. UAL and Delta Air Lines Inc. DAL are reaping the rewards of what analysts call "the premiumization trend,” he added.

According to Morgan Stanley, these carriers benefit not just from ticket sales but from steady ancillary revenue streams, including loyalty programs, credit cards, and brand partnerships.

In 2024, UAL's stock soared over 150%, leading Morgan Stanley to raise its price target from $88 to $130. However, the extraordinary run places a high bar for further gains.

Alaska Air Group Inc. ALK climbed to Morgan Stanley's top pick for 2025, with an upgraded price target of $90 on the back of "upsized synergy targets at their recent Investor Day."

Domestic Airlines Eye A Comeback

While premium carriers dominated in 2024, several domestic-focused airlines are staging a resurgence. Low-cost and ultra-low-cost carriers, including JetBlue Airways Corp. JBLU and Southwest Airlines Co. LUV, faced a tough year marked by operational challenges and restructuring efforts.

"The other big shift in 2024 was several domestic carriers fundamentally changing their business models to fly less, fly differently, bundle fares, and move upmarket," Morgan Stanley highlighted.

As these carriers stabilize operations, easier year-over-year comparisons position them for a strong recovery.

Morgan Stanley resumed coverage of JBLU at ‘Equalweight’ with a 12-month price target of $8.

“We like the elements of the JetForward plan but note that the turnaround is likely to be slower with more elements outside of management’s control than other Domestic peers,” Shanker wrote.

Industry Metrics Flash Green For 2025

Morgan Stanley expects 2025 to mark the first sustained period where revenue per available seat mile (RASM) exceeds cost per available seat mile (CASM).

This dynamic is expected to boost margins across the board, a stark reversal from earlier pandemic years.

Analysts project mid-single-digit (MSD) volume growth for the industry, supported by constrained capacity growth at low-single-digit (LSD) levels​.

Fueling optimism is a favorable jet fuel environment. Prices are forecast to hover in the low $2 per gallon range through 2026, providing airlines with critical cost stability. "

This is the sweet spot of the industry where pricing can drop through to the bottom line while offering an added incentive for capacity to remain rational," Morgan Stanley wrote in the note​.

Investor Sentiment: Opportunities And Risks

Despite 2024's strong performance, airline valuations remain compelling. Analysts note that stocks like ALK, AAL, and DAL trade below historical earnings multiples, offering attractive upside potential.

Yet, risks loom, including macroeconomic headwinds and the possibility of a slowdown in consumer spending in the second half of 2025.

Morgan Stanley also flagged the return of institutional investors as a positive catalyst. "The potential return of large, sticky capital bases for the first time in 10 years could set another leg or three in the stocks' run in 2025," Shanker said​.

Now Read:

• Bank Of America Raises Bullish Outlook On US Brokers, Exchanges, Alternative Investments: 3 Top Picks For 2025

Image: Best Airports 2024 | Image generated using Dall-E