A record year for travel in the United States is pushing airline stocks to a soaring annual outperformance, and the prospect of sustained earnings power points to a bullish outlook for 2025.
The S&P Supercomposite Airlines Index has jumped 60% in 2024, compared with a 27% gain for the S&P 500 Index. It’s the best year for the industry gauge since 2014, which is also the last time it beat the broader market by this amount. Shares of United Airlines Holdings Inc., the airline gauge’s top performer, are up 144% this year, making it the fourth-biggest gainer in the S&P 500.
Americans have been flying in unprecedented numbers, with the top 10 travel days in the Transportation Security Administration’s history coming in 2024, according to the US Department of Transportation.
The travel itch is one reason the stocks have rebounded from a mid-year slump. The other side of the equation is that there’s been limited growth in capacity, partly because carriers are cutting back on unprofitable routes. Barclays Plc sees seat growth below 3% for U.S. airlines in 2025, short of long-term pre-pandemic trends.
Investors also see the shares as trading cheaply, say Barclays analysts led by Brandon Oglenski. He favors legacy carriers like United and Delta Air Lines Inc. because of their premium travel offerings and international exposure, as well as Alaska Air Group Inc. and Frontier Group Holdings Inc. for their revamped frequent flyer programs.
JetBlue Airways Corp., Southwest Airlines Co. and American Airlines Group Inc. have all raised their earnings forecasts for the fourth quarter, reflecting strong demand for holiday travel, higher airfares and lower fuel prices. Delta kicks off the quarterly reporting cycle for the group on Jan. 10.
There’s also optimism that the regulatory backdrop under President-elect Donald Trump will support the group. Industry executives view Trump’s pledges of deregulation and lower taxes as likely to drive demand further and be more friendly toward mergers than President Joe Biden’s administration.