Why Huge Holiday Travel Could Be the Spark for Top Airline Stocks

Despite reasonable jet fuel pricing for the most part, the airlines have lagged this year, as has the transports index. While up 8.6%, that pales in comparison to the double-digit gain for the other three major indexes. One issue that has plagued the industry is the grounding of the 737 Max, but one top airline said this week it will be returning the aircraft to service in January.

Many on Wall Street are expecting a huge holiday shopping and selling season for retailers as consumers remain in very good shape, unemployment is at the lowest in 50 years and employee earnings are increasing. With the surge in optimism, there is also expected to be an increase in travel.

In a new Stifel report, the analysts are positive on the passenger revenue per available seat mile (PRASM) numbers for one top Buy-rated stock, and they also have three of the other big carriers rated Buy. PRASM is a commonly used measure of unit for airline revenue.

American Airlines

This company has its major hub in Dallas, where business continues to boom, and it says it will reintroduce the 737 Max to its fleet in January. American Airlines Group Inc. (NASDAQ: AAL) is the holding company for American Airlines.

Together with wholly owned and third-party regional carriers operating as American Eagle and US Airways Express, the airlines operate an average of nearly 6,700 flights per day to 350 destinations in over 50 countries from its hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix and Washington, D.C.

Investors receive a 1.48% dividend. Stifel has a price target of $55 on the shares, while the Wall Street consensus target is $37.35. The shares closed Wednesday at $27.06.

Delta Air Lines

This company consistently has ranked high with Wall Street, but its stock sold off some recently and is offering a good entry point. Delta Air Lines Inc. (NYSE: DAL) and the regional Delta Connection carriers offer service to 334 destinations in 64 countries on six continents. Headquartered in Atlanta, Delta employs nearly 80,000 employees worldwide and operates a mainline fleet of more than 700 aircraft.

Wall Street analysts have long lauded that Delta has the most extensive hedging policy among the airlines and owns and operates a refinery in addition to a sizable hedging book. The stock has somewhat underperformed this year, but if bookings and the economy continue to spike during the holidays and in 2020 and beyond, many believe that the company’s multiple stands to benefit the most among the major carriers.

Delta investors receive a 3.00% dividend. The Stifel target price is $90, and the consensus price objective is $68.06 The stock closed most recently at $53.92.

Southwest Airlines

This company continues to expand routes, remains a low-cost leader and is also one of the top airline picks across Wall Street. Southwest Airlines Inc. (NYSE: LUV) is the fourth-largest U.S. airline by revenues and operates a customer-friendly, low-cost, point-to-point model without fees and offers flights throughout the continental United States. Its six largest operations are in Dallas, Chicago, Las Vegas, Baltimore, Phoenix and Houston.

With almost no international business at this time, currency headwinds are not an issue for the airline. The company has begun new service and routes to Hawaii, which are expected to be expanded in 2020.

Based on the U.S. Department of Transportation’s most recent data, Southwest Airlines is the nation’s largest carrier in terms of originating domestic passengers boarded. The company operates the largest fleet of Boeing aircraft in the world, the majority of which are equipped with satellite-based Wi-Fi, providing gate-to-gate connectivity.

Southwest shareholders receive a 1.35% dividend. The $75 Stifel target price target compares with the $60.22 consensus target and the most recent close at $53.49 per share.

United Airlines

This company has found a way to constantly shoot itself in the foot, but business remains strong. United Airlines Holdings Inc. (NYSE: UAL) is the holding company for United Airlines and United Express, which operate an average of 5,055 flights a day to 373 airports across six continents.

United’s key U.S. hubs include Chicago, Denver, Houston, Los Angeles, New York/Newark, San Francisco and Washington, D.C. The airline is a founding member of Star Alliance, which provides service to 193 countries via 27 member airlines.

The Stifel price target is a stunning $140. The consensus target is $109.71, and the stock closed on Wednesday at $86.46.

The combination of a still solid economy with healthy competition among the carriers keeps air travel at very reasonable levels. While costs do increase for holiday travel, they are expected to remain at levels that will encourage many to hit the skies to get to their holiday destinations.