More people than ever before travel by plane. This has caused massive growth in the airline industry—and Wall Street has taken note. For those who are interested in learning more about the best airline stocks, it’s important to learn about the major carriers.
Top Airline Companies in the World
From Linhas Aereas to Spirit airlines, many carriers from around the globe are respectable players in the industry. However, the world's top international airlines have each developed a unique strategy that has propelled them to become leaders within the industry. Before investing in airline stocks, it helps to understand some of the key aspects of this high-flying industry.
According to the International Air Transport Association, the number of air travelers has massively increased in recent years. In 2012, there were about 3 billion air travelers, but in 2019 there is expected to be about 4.5 billion. The global airline industry has a total revenue of over $800 billion. Though this is a large and quickly growing industry, airlines often struggle to differentiate themselves.
There is little to no difference between the fleets of planes each airline flies. All airlines use either Boeing or Airbus jets. Airlines need a variety of different types of planes to make different types of journeys. Having more or bigger planes isn’t necessarily beneficial unless they’re used on the right routes at the right times.
A plane with better fuel economy can save money since fuel costs are minimized, while a plane with well-known issues, such as Boeing’s 737 Max, can cost companies a lot of money. The biggest expense for airlines is gas, which also makes it harder for airlines to differentiate themselves since fuel costs affect all airlines similarly.
Consumers want to get where they’re going as quickly and cheaply as possible and there is not much that airlines can do to change either of these two things. For example, an airline can include a free checked bag in the price of the ticket, but commercial airplanes travel at the same speeds. In general, most major airline companies have positioned themselves into two major groups: full-service and budget. Full-service airlines aim to meet the needs of many different types of travelers, both business and leisure, by offering many different flight options to destinations all over the world. Budget airlines focus almost exclusively on price and try to appeal to cost-conscious consumers.
Top Airline Companies in the World
These top companies showcase the many different strategies that airlines can use to stand out in the competitive airline market.
United Airlines (UAL)
United Airlines falls within the category of a full-service airline. Though Delta has a larger market capitalization, United Airlines is the largest airline based on many other metrics, including revenue, fleet size, and total number of passengers. Though United Airlines does not have the largest market cap of all airline companies, it still has a strong market capitalization of $21.2 billion.
United Airlines had a strong 2019. The first half of the year saw growth, based largely on lower fuel prices and an increase in the number of people traveling. The company’s growth was not limited to the first half of 2019. Travel demand continues to increase, and this trend is reflected in the company’s third-quarter earnings. United Airlines’ third-quarter net income reached over a billion dollars, which is a 23% increase from the same quarter of the previous year. This increase in revenue occurred even though United Airlines was forced to ground all of its Boeing 737 Max planes after issues caused two aircraft to crash. The grounding of the Boeing 737 Max planes has had some negative effect on the airline, including a lower than expected capacity.
United Airlines also saw third-quarter growth in its revenue per available seat mile. Revenue per available seat mile is an important industry metric that calculates how much the airline earns for every seat it flies per mile. This metric is especially useful since not all flights are equal in terms of revenue. For example, a flight from New York City to France and a flight from Los Angeles to Australia may use the same size plane with the same number of passengers, but the different flights will have different effects on revenue.
United Airlines has projected a strong 2020 for the company, though investors should tread cautiously. While United Airlines has potential to grow, its most recent growth was based in large part on lower fuel costs. This means that the company will likely be unable to maintain the same level of growth that it saw in 2019.
In terms of market capitalization, Delta is the largest airline in the world, with a market cap of $37.1 billion. Delta is considered a full-service airline, though it still remains fairly cost-effective. Delta is an innovator in the airline industry and the company has been at the forefront of the airline industry over the last decade. Delta was one of the first of the full-service airlines that revamped its prices in order to remain competitive with the many different budget airlines.
Delta stands out from other airlines by offering customers access to flights all over the world with many different flight options. This allows customers to get where they want, when they want. Delta manages to do this by partnering with many smaller, international airlines. Delta also has a history of thinking outside of the box and coming up with effective solutions to various problems. For example, in 2012, Delta was having issues getting a sufficient amount of jet fuel to its hubs in the northeast United States. To solve this problem, Delta bought a refinery in Pennsylvania in order to have more access to fuel.
Delta’s returns have outperformed many of its competitors. For those with a dividend investing strategy, it is also worth noting that Delta pays a relatively high dividend compared to many others in the industry. Though there are many reasons that investors may want to purchase Delta stock, one potential concern is how Delta stock will perform during a recession. In general, the airline industry is significantly affected by recessions since many people cut back on travel. However, since much of Delta’s revenue comes from first-class and business class tickets, Delta could be harder hit by a recession than others in the industry.
Southwest Airlines (LUV)
Unlike United Airlines and Delta, Southwest Airlines is a discount airline. Southwest caters to a more cost-conscious consumer base by offering low-cost flights. Though Delta is the largest airline in terms of market cap, and United Airlines is the largest in terms of other metrics such as revenue, the largest airline in terms of profit is Southwest. Southwest also boasts a strong market capitalization of $27.8 billion.
In December 2019, Southwest announced that it would have to cancel a number of flights in 2020. These cancellations are due to continued issues with the Boeing 737 Max plane. Southwest said that it would have to cancel about 300 national flights, but the company did not specify which flights would be canceled. According to the company, all of the canceled flights are between March 6th and April 13th of 2020.
Southwest is the largest customer of Boeing’s 737 Max planes, which means the grounding of the max jets has had an especially detrimental effect on the company. Southwest says that the grounding of the Boeing 737 Max plane has already cost the company $435 million, and the recent cancellations extending into April will likely continue to add to this number.
Though the grounding of Boeing’s 737 Max plane has had a negative impact on many airlines, including Southwest, 2019 was still a strong year for the company. Southwest reported record net income and operating revenue in its third-quarter earnings report for 2019. These numbers are especially impressive given the effect of the grounding of the Boeing 737 Max. The most recent news shows that the grounding is still affecting Southwest and investors should keep this in mind when considering whether or not to purchase Southwest stock.
Singapore Airlines (SINGY)
Singapore Airlines is based in Singapore and offers flights all over the world. The airline provides both long haul and short-haul flights. Though the company’s $8 billion market capitalization is smaller than some of its competitors, the company’s diverse strategy is worth noting. Singapore Airlines has branded itself as a service-based airline, compared to the growing number of discount competitors. Though the Singapore Airlines name is marketed as a high-quality airline, the company also takes advantage of other markets within the airline industry.
Singapore Airlines' most noteworthy operations include SilkAir, Budget Aviation, and SIAEC. SilkAir focuses on a regional market. Budget Aviation has a focus on low-cost air travel through the company’s Scoot brand. SIAEC focuses on maintenance and fleet management. These diverse segments of Singapore Airlines have allowed the airline to avoid having to limit itself to either the full-service category or the discount category of the airline industry.
Singapore Airlines' strategy appears to be working well. In the company’s most recent quarter, Singapore Airlines saw a 68% increase in profit compared to the same quarter of the previous year. The company has said that this increase was based largely on the success of its joint ventures and relationships with associate companies. This dramatic increase in profit has caused many investors to take note of the airline, but investors should tread cautiously. Though dramatic gains can mean good things for the future of a company, many companies see these returns and expect the company to keep up an unsustainable level of growth. Investors will have to wait and see if Singapore Airlines can keep up its strong growth into 2020.
American Airlines (AAL)
American Airlines is a full-service airline with a market cap of $11.4 billion. Technically, American Airlines Group Inc. is a holding company that owns multiple airlines that fly both passengers and cargo. The company’s cargo service transports various cargo, including mail, all over the world. Though American Airlines offers global flights, the company has the strongest presence around its hubs, which include cities some mid-sized cities, such as Charlotte, Dallas/Fort Worth, Philadelphia, Phoenix, and the District of Columbia.
American Airlines, like many others in the industry, saw a fairly strong 2019, despite some setbacks. Like almost all other airlines, American Airlines faced challenges due to the grounding of the Boeing 737 Max. On top of these issues, the company had operational issues that caused the customer service team to have to do damage control. Given all these issues, American Airlines still had a strong quarter. The company’s third-quarter earnings report showed a net income increase of 15% over the third quarter of 2018. Third-quarter revenue reached $11.9 billion, which is a record amount for American Airlines. Total revenue per available seat mile (TRASM), increased by 2% compared to the same quarter of last year. This TRASM is especially noteworthy since this is the 12th consecutive quarter that American Airlines’ TRASM has increased.
Though the majority of 2019 looked good for American Airlines, recently, the company has seen a dip in its stock price. Between mid-November and mid-December of 2019, American Airlines saw a 3.45% drop in the share price. In contrast, the S&P 500 gained 2.4% during that same period of time. Though this drop may be troubling, it also may be temporary. One area that does set American Airlines stock apart, especially for investors interested in dividends, is the decent dividend the company pays shareholders.
Ryanair has taken the discount airline concept to the next level. The Irish company is based in Dublin and offers deeply discounted flights within the United Kingdom, continental Europe, Morocco, and Israel. Ryanair’s strategy is similar to that of Southwest. Ryanair does not try to compete with full-service airlines and instead offers deeply discounted prices that often fly to secondary airports of mid-sized cities.
This fairly straightforward approach has served the company well for many years, but recently Ryanair has begun diversifying. In the last two years, Ryanair created an Austrian based airline called Lauda, then it announced its new Polish subsidiary, Buzz, and in June of 2019 Ryanair unveiled Malta Air, an airline based in Malta. This is a large amount of diversity in a relatively small amount of time, especially considering how straightforward the company's strategy has previously been.
The results of this diversification are still uncertain. The company had a rather tumultuous 2019, with the grounding of the Boeing 727 Max and an employee strike that occurred in August and September of 2019. Though there was a large amount of media attention given to the pilots that went on strike, enough pilots remained that few flights were actually affected. In the most recent quarter, Ryanair has seen an increase in the number of passengers as well as an increase in revenue. But these results have been tempered by an increase in cost. Even with the increase in revenue and passengers, the growth in costs caused Ryanair’s operating profit to decrease, though overall profit remained the same as the previous year. Ryanair’s strategy update is worth keeping an eye on, but even if the strategy is successful, it may still be a few quarters, or even years, before the results are fully realized.
JetBlue falls into the discount category of airlines. Though JetBlue is smaller than many of the other major airlines, with a market cap of $5 billion, the company is still a major player in the airline industry and is one that investors should keep an eye on. Unlike some of the other top airlines, which offer international flights all over the world, JetBlue instead focuses on a smaller region. JetBlue offers flights all over the United States, as well as in the Caribbean and Latin America. Since JetBlue only flies within North America, it can better focus its efforts in a single geographic area. This highlights how different airlines have managed to succeed by using completely different strategies. For example, JetBlue’s strategy is very different than Singapore Airlines, but both companies have found success in their individual niches. Though JetBlue’s flights are mostly domestic, the company still has over 30 million customers a year and over 80 different destinations.
JetBlue’s third-quarter report was a mixed bag. Revenue passenger miles increased to $4.26 billion. This is a 3.7% increase for JetBlue from the same quarter of the previous year. RPMs are an important metric that the airline industry uses to measure the amount of traffic. In other important metrics, though, JetBlue failed to have more positive results. One specific area where JetBlue saw less than great third-quarter results was the company’s load factor. For the third quarter of 2019, JetBlue’s load factor decreased. This metric measures the percentage of seats filled by passengers. The decrease in load factor was caused by an increase in capacity that was not matched by traffic growth. This means that JetBlue had more capacity but was unable to get as many customers as expected, and therefore could not reach the capacity level it had hoped to obtain.
The airline industry is complex, and it can be difficult for an investor to know which companies are the best airline stocks. Those struggling to decide which stocks to buy may be able to invest in an airline ETF instead of an individual airline stock. An Exchange Traded Fund (ETF) is a fund that is publicly traded on a stock exchange, but that is made up of multiple securities. Unlike hedge funds, the goal of an ETF is not to beat a certain industry or sector, but instead to match the growth of the overall sector or industry. As a result, the securities in an ETF usually fall within one sector or industry.
While hedge funds are often better suited for more risk-tolerant individuals, an ETF allows an investor to invest in multiple companies with only one investment. This can help an investor create a more diversified portfolio and also minimizes the stress of having to pick one or two companies in an industry they’re not familiar with. For those looking to make an investment in an Airline ETF, it’s worth considering the following:
- SPDR S&P Transportation ETF (XTN)
- iShares Transportation Average ETF (IYT)
- U.S. Global Jets ETF (JETS)
Should I Invest in Airline Stocks?
Airline stocks have historically been viewed as a bad investment, and it was the rare stock advisor who would suggest investing in the airline industry, but a growing number of passengers combined with more streamlined strategies have created more potential for the airline industry. Airline stocks may not be the biggest stock gainers, best growth stocks, or most active stocks, on Wall Street but they may still have a place in your portfolio.
Though the last ten years may have made airline stocks look like a good investment, it’s also important to keep in mind that airline stocks may not perform as well during recessions, which have historically been difficult for airlines. For the time being, airline stocks have the potential to be a good investment as part of a diversified portfolio.
Companies Mentioned in This Article
6 Stocks to Help You Profit Off the Coronavirus PPE Boom
Every major global event brings with it changes to our national lexicon. Before the Covid-19 pandemic, few Americans knew what the initials PPE stood for. Today, virtually anyone knows that PPE stands for personal protective equipment.
At the onset of the mitigation policies, the goal of flattening the curve was being done to prevent our health care system from becoming overwhelmed. Part of that concern stemmed from a shortage of personal protective equipment. These are the masks, gloves, goggles and gowns that help protect medical workers against viral or bacterial infections.
As the novel coronavirus became labeled a global pandemic, the global mantra became to “flatten the curve” in an effort to prevent our healthcare system from being overwhelmed.
The United States is being referred to as being on a war time footing. Manufacturers that were already producing PPE have significantly ramped up capacity. And many companies are converting their excess manufacturing capacity to produce personal protective equipment.
In fairness, this may only be a reason for some of these companies to “keep the lights on” right now. But many of these companies have a good story to tell. And it’s that story that can make them solid investments in the future.
View the "6 Stocks to Help You Profit Off the Coronavirus PPE Boom".