Is It Good To Invest In Airlines Now?

Airlines are an integral part of the US economy, but their stocks have been bad investments.

Over the past couple of years, airlines have consolidated their positions in the US market. Four companies now control about 80% of the market

Airline stocks started to recover from their losses due to the COVID-19 crisis. The industry is expected to post a profit of around $47 billion in 2021, which is significantly lower compared to the losses it incurred in 2020.

The International Air Transport Association noted that the rise in vaccine delays and virus cases affected the airline industry in 2019. The organization then revised its global passenger revenue growth forecast for the following year to 26% from its previous estimate of 26%.

With the recovery of the airline industry, investors can take advantage of the potential growth opportunities presented by the sector.

According to R&M, the global air transportation market is expected to grow at a compound annual rate of 6% from 2020 to 2025.

The volatility in the market due to the emergence of new virus variants has caused hedge funds to rethink their strategies. It has tarnished their reputations.

Through our proprietary research, Insider Monkey was able to identify stocks that performed well relative to the S&P 500 during the period from 2017 to 2021.

According to Shanker, the bad news for the aviation sector peaked in the third quarter. This suggests that the airlines' margins are improving.

Airline stocks have started to rally over the last couple of weeks, as investors prepare for brighter skies in 2022 and a potential new pill from Merck.

All of the major airlines have gained in the past month.

However, not every analyst is on board with the recovery of the airlines. For instance, Andrew Dowa of Bank of America has a more conservative approach.

Despite the near-term headwinds, the recovery in the aviation industry's overall trajectory is expected to remain unchanged, according to Dorsa. She is more cautious on airlines' balance sheets and prefers Southwest and Alaska Air.

Airlines after COVID-19

Although the pandemic has already receded, the recovery of the airline industry is expected to take a bit longer. The IATA, which represents the industry, has suggested that the recovery may not happen until 2024.

As the US economy begins to recover, airlines are struggling to keep up with the additional flights that are needed to accommodate the increased demand.

The rise in passenger numbers caused airlines' revenues to fall. But, since people started traveling again, stocks have gained altitude.

1. Southwest Airlines

Despite experiencing labor problems, Southwest has shown that it can still fly through turbulence.

Southwest Airlines, which was the original discounter, is now considered a pioneer in the industry. It is the only major carrier that hasn't filed for bankruptcy.

2. Delta Air Lines

Delta is considered a good choice to emerge from the pandemic as it has a stable balance sheet and strong labor relations.

Delta is also the driving force behind the industry's continuous innovation. It started a series of consolidations in 2008 to stabilize its business after it acquired Northwest Airlines.

3. United Airlines Holdings

United Airlines has been the envy of the industry since it has a huge presence in key business markets. During the pandemic, its advantage was lost.

United Airlines has a massive network in the US and Asia. Due to the volatile nature of the markets it operates in, its results can fluctuate.

4. American Airlines Group

If you're considering buying stocks but would rather not invest in individual stocks, there are various exchange-traded funds that are focused on the airline industry. These funds can help you avoid investing in airlines.

During its earnings call, American Airlines noted that it is looking to create new partnerships to expand its operations in the US Northeast.

American Airlines, which is a brand new player, is considered a classic in the industry. Its extensive network and ties with European airlines make it a safer choice for travelers. However, it might be prone to experiencing pandemic-related issues.

Trends in the air travel industry

The upturn in the air travel market tends to be good times for new airlines as they can capitalize on the low prices of planes.

These companies are focused on leisure travelers, which is expected to make up the bulk of their business in 2021.

Two new airlines have debuted in 2021. Sun Country Airlines and Frontier Group are the first new entrants in the air travel industry in 2021.

Understanding the airline sector

ACASM is the cost of an airline's total expenses divided by the number of available seats. It measures the expenses related to the sales of an airline.

The RASM is a measure of an airline's profitability, as it shows if it can make money by selling tickets at a low price to fill seats or if it has enough incentive to do so.

A good RASM is important because it shows how much money an airline makes from each flight. It doesn't take into account all of the factors that affect its cost structure.

Revenue per available seat-mile is a measure of an airline's profitability. It shows how much money an airline makes from each seat that it has.

The load factor is a measure of an airline's ability to fill its seats. It is computed by taking the number of seats available for each mile traveled.

Investors can get this information at home by dividing the number of passengers on a given flight by the number of available seat miles.

Related: What You Should Do to Get Tickets Refundable?

Opportunities for all

After the stock market's upward trajectory, it's time to invest in stocks now.

For 2021, we see robust growth opportunities in China, India, and other G-20 nations. As for the aviation industry, it is expected to recover faster than the G-20 nations.

During the year 2020, the global airline industry experienced significant losses. The decline in the share price led to record-breaking losses for several airlines.

Looking ahead

The aviation industry was hit hard by the Covid pandemic. Despite the signs of a recovery, it’s still going to take a while for the industry to fully recover. It’s time to start planning for the future and capitalize on the opportunities that are coming our way.