The US airline industry experienced a record-breaking year in 2024, propelling airline stocks to significant gains and setting the stage for a potentially strong performance in 2025. The S&P Supercomposite Airlines Index surged 60% in 2024, dramatically outperforming the S&P 500 Index’s 27% rise. This marks the industry’s best performance since 2014, also the last year it surpassed the broader market by such a margin. United Airlines Holdings Inc. led the charge with a remarkable 144% increase, securing its position as the fourth-best performer in the S&P 500.
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Unprecedented Travel Demand and Capacity Constraints Fuel Growth
This surge in airline stock performance is largely attributed to record-breaking travel numbers in the US. According to the US Department of Transportation, 2024 witnessed the ten busiest travel days in the Transportation Security Administration’s history. This sustained travel demand, coupled with airlines’ strategic capacity management, has created a favorable environment for profitability. Carriers have focused on optimizing their networks by reducing unprofitable routes, leading to limited capacity growth. Barclays Plc projects seat growth for US airlines to remain below 3% in 2025, falling short of pre-pandemic trends.
Investor Optimism and Bullish Outlook for 2025
Beyond strong demand and constrained capacity, investors are drawn to the airline sector’s perceived undervaluation. Barclays analysts, led by Brandon Oglenski, favor legacy carriers like United and Delta Air Lines Inc. due to their premium travel offerings and international exposure. They also highlight Alaska Air Group Inc. and Frontier Group Holdings Inc. for their enhanced frequent flyer programs.
This positive outlook extends to 2025, with Barclays anticipating significant improvements in airline fundamentals, leading to strong margin and earnings prospects. This optimistic view is supported by recent financial updates from several airlines, including JetBlue Airways Corp., Southwest Airlines Co., and American Airlines Group Inc., all of which have raised their fourth-quarter earnings forecasts. These upward revisions reflect robust holiday travel demand, higher airfares, and lower fuel costs. Delta Air Lines will initiate the sector’s quarterly reporting cycle on January 10.
Regulatory Expectations and Industry Landscape
The anticipated regulatory environment under President-elect Donald Trump is also viewed favorably by the industry. His promises of deregulation and tax cuts are expected to further stimulate demand and foster a more merger-friendly climate compared to the Biden administration. While some skepticism remains regarding the extent of regulatory changes, industry executives express optimism about the potential for a more supportive environment.
Challenges and Risks Remain
Despite the positive momentum, challenges persist. Costs associated with maintaining older aircraft due to delivery delays from Boeing Co., as well as oil price volatility, pose ongoing risks. These factors contribute to the cautious stance of some investors. Even with the recent rally, the airline industry index remains below its early 2020 levels.
Short interest in the US Global Jets ETF (JETS), a major exchange-traded fund tracking international travel, has risen significantly, indicating some investors’ doubts about the sustainability of its recent gains. While institutional ownership of airline stocks remains relatively low among long-only investors, hedge fund and retail participation has increased.
Conclusion: A Sector Poised for Growth
The US airline industry has experienced a remarkable resurgence in 2024, driven by strong travel demand, capacity discipline, and improving financial performance. While challenges remain, the sector appears well-positioned for continued growth in 2025, supported by a positive industry outlook and favorable investor sentiment. The upcoming earnings season will provide further insights into the strength and sustainability of this recovery.
