10 Best Airline Stocks to Buy According to Hedge Funds

7. Southwest Airlines Co. (NYSE:LUV)

Number of Hedge Fund Holders: 23

Southwest Airlines Co. (NYSE:LUV) is a major airline based in the United States, that offers flights from 117 airports across 11 countries. The low-cost carrier operates on a point-to-point model enabling direct flights between destinations, and eliminating the time and distance taken when traveling with airlines that require passengers to travel through a conventional hub.

During the second quarter of 2024, Southwest Airlines generated a revenue of $7.35 billion, beating expectations of $7.32 billion, and up 4.5% from last year. Net income for Q2 stood at $367 million, resulting in an EPS of 58 cents, which beat estimates, but was down 46% year-over-year. The company’s earnings continue to be burdened, partly driven by plane delivery delays from Boeing, which has depressed revenues and increased pressures on costs. The airline has also been greatly affected by dampened airfares amid overcapacity in the domestic market.

According to a September report in the Associated Press, the company’s shares have lost around half of their value over the past three years due to these factors, which has led to increased investor pressure to improve performance. Elliott Investment Management, a hedge fund, has launched a campaign to call a special meeting of shareholders to dump CEO Bob Jordan and replace two-thirds of the board of directors for underperformance.

The airline has recently announced plans to end its open-seating policy and begin offering premium seating, in a bid to elevate customer experience and drive shareholder value. Southwest Airlines expects revenue from its new seat model and extra legspace to be north of what it generates from its ancillary offerings. The company will also be starting red-eye flights in early 2025. Southwest has also been improving its operational systems, which helped the company stay largely unaffected by the global tech outage in July.

While hedge fund sentiment towards the company has dipped significantly – from 33 hedge funds having investments in the stock in Q1 to just 23 in Q2 – because of the ongoing headwinds, Southwest Airlines Co. (NYSE:LUV) continues to be one of the best airline stocks to buy according to hedge funds.