Since the beginning of the year, airline stocks have signaled the industry is recovering from the Covid pandemic. Earnings reports suggest airlines are getting back to pre-pandemic levels, with air carriers seeing strong demand for air travel.
So far in 2023, the number of people traveling by airplane is on par with pre-pandemic levels, according to Transportation Security Administration data. As people return to the skies, airline stocks are also taking off.
Collectively, the 19 stocks in IBD's Transportion-Airline industry group have gained around 50% in 2023. That's the fifth-best year-to-date increase among the 197 industries tracked by IBD.
United Airlines has advanced 48% on the year while Delta Air Lines is up around 47%. American Airlines stock has gained 46% since the end of 2022.
Copa, the leading Latin American air carrier, is also on the upswing, gaining 32% so far in 2023.
Meanwhile, Southwest Airlines has increased more than 7% while Spirit Airlines shares have fallen 3%.
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As of July 11, both United Airlines stock and American Airlines stock sit on the IBD 50 list.
With earnings upcoming, are any airline stocks buys or should airline stock exposure be grounded for now?
The Risks With Airline Stocks
Some things are out of anyone's control. The coronavirus pandemic, for example, brought global air travel to a halt.
Then, toward the end of 2022, the airline industry was just a fragment of the U.S. economy. Airlines were upended by freezing temperatures, high winds and snowfall from a massive winter storm that blanketed more than half of the U.S.
The storm forced much of the U.S. airline network to shut down. Most carriers recovered normal operations within days. But Southwest Airlines lagged far behind the rest of the airline industry, attempting to recover from weather disruptions which resulted in thousands of canceled flights.
In January, following December's air travel fiasco, the Federal Aviation Administration also grounded thousands of flights across the U.S. for several hours after a key computer system failed. However airline stocks showed only a mild response.
Investors should remember the volatile nature of travel when thinking about adding exposure to airline stocks. One way to modestly diversify industry holdings is via the U.S. Global Jets ETF. The fund is up 29% so far in 2023; it fell 19% in 2021.
American Airlines Stock
AAL shares have advanced 4% in July.
American Airlines ranks seventh among the airline stocks in the Transportation-Airline industry group. AAL stock has a Composite Rating of 98. It has a 92 Relative Strength Rating, an exclusive IBD Stock Checkup gauging share-price movement. AAL has an EPS Rating of 80.
The air carrier is slated to announce second-quarter financials early on July 20. Analysts project profits ballooning 105% to $1.56 per share. Wall Street predicts revenue increasing 2% to $13.77 billion.
On April 20, the air carrier narrowly topped Q1 earnings estimates, with EPS of 5 cents, up from a loss of $2.32 a year ago. American Airlines missed on revenue views, with sales increasing 37% to $12.19 billion.
During the Covid pandemic, AAL had a string of nine quarterly losses before posting a profit in Q2 2022.
Is America Airlines Stock A Buy Right Now?
United Airlines Stock
The air carrier will report Q2 earnings on July 19 after the market closes. Analysts predict profits surging 178% to $3.98 per share with sales increasing 14% to $13.9 billion.
United Airlines has seen sales grow over the past seven quarters. But profits have been mixed.
First-quarter revenue totaled $11.43 billion, rising 51% from last year. Meanwhile, a loss of 63 cents per share improved from a loss of $4.24 in Q1 2022.
The Chicago-based air carrier generated a record $3 billion in operating cash flow during the quarter. The airline also saw the lowest seat cancellation rate for the first quarter since 2012.
United closed out 2022 with Q4 revenue and earnings both jumping more than expected by analysts. Earnings of $2.46 per share topped analysts' $2.10 target. Revenue came in at $12.4 billion, vs. the $12.23 estimate.
Judged against the pre-pandemic benchmark of Q4 2019, United's operating margin increased by 14%. Revenue per seat mile swung 26% higher.
Like many air carriers, United had a run of losses during the Covid pandemic.
United Airlines stock has a 99 Composite Rating out of 99. UAL has a 93 Relative Strength Rating. The EPS rating is 72.
On June 27, UAL advanced 5% to 56.03, hitting a two-year high and ascending past a cup-with-handle base buy point of 54.05, according to MarketSmith. Shares are sitting around 3% above that still valid entry point as of July 11.
Airline Stocks: Delta Air Lines Stock
Delta Air Lines reports second-quarter financials on July 13. Analysts expect Delta earnings to grow 67% to $2.40 per share in the second quarter. Sales are predicted to increase 17% to $14.41 billion, according to FactSet.
On June 27, the air carrier raised its annual outlook, guiding expectations for 2023 profits to the top end of its prior forecast range, from $5-$6 per share. The carrier earned $3.20 a share in 2022.
Delta also boosted its annual revenue outlook to 17%-20% growth, compared with the prior forecast of a 15%-20% jump.
The midpoint of Delta's 2023 revenue view is $54 billion. Delta's presentation listed a "long-term goal" of generating more than $60 billion in total revenue. Analyst consensus is for Delta to see 2023 sales total $54.07 billion.
The air carrier also raised its second-quarter revenue growth target to 17%-18% from 15%-17%.
Delta Air Lines stock has a Composite Rating of 99. Its Relative Strength Rating is 94 and its EPS Rating is 82. DAL shares are working on a ninth straight weekly advance, up 47% so far in 2023, with a 57% gain off a March 24 low.
The airlines stock bolted 6.8% following its June 27 outlook updates. Shares topped a 40.30 entry for a cup base on June 13 after a major run-up in late May.
Airline Stocks: Copa Stock
Top-rated Copa is another airline stock worth considering. Copa stock has a 99 Composite Rating out of 99. It has a Relative Strength Rating of 94. Its EPS Rating is 83.
United Airlines and Copa have a strategic alliance. Copa Airlines was founded in 1947 as the National Airline of Panama. Today it is a leading Latin American provider of airline passenger and cargo service. The Copa holding company has two principal operating subsidiaries, Copa Airlines and Copa Colombia.
Copa Stock Looks Set To Takeoff
With earnings due in August, Copa stock has formed a four-weeks-tight pattern with a 114.48 buy point, according to MarketSmith analysis.
The stock has been trading tightly for six weeks and could be actionable on a rebound from support at its 10-week moving average.
Are Airline Stocks Buys Right Now?
The market is in a confirmed uptrend and IBD ratings for airline stocks signal strength. Investors eager to add exposure could step up once some airline stocks enter buy zones. IBD advises investors to execute caution adding exposure to stocks so close to earnings.
So are airline stocks a buy? In cases where there are valid buy points, and with the market in a confirmed uptrend, some airline stocks qualify as buys. But investors should be discerning about adding new positions, and be sure not to buy stocks that are too extended.
Please follow Kit Norton on Twitter @KitNorton for more coverage.
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