In this article, we will discuss: 10 Best Airline Stocks To Buy According To Short Sellers.
The COVID-19 pandemic’s impact on travel caused an alarming 54.1% drop in the airline industry’s revenue from $838 billion in 2019 to $384 billion in 2020, according to the International Air Transport Association (IATA). However, the industry has subsequently risen substantially, with annual revenue estimated to reach $996 billion by 2024, representing 18.8% growth from 2019 and a 159% recovery from the pandemic low.
On the other hand, the Business Research Company projects that the global airline market will grow at a compound annual growth rate of 8.2%, from $523.04 billion in 2023 to $566.06 billion in 2024. Whereas in the upcoming years, a significant expansion in the size of the airline industry is anticipated at a CAGR of 8.8% to $794.61 billion in 2028. According to the aforementioned research, the increase in the number of air passengers is fueling the growth of the airline industry. For example, in March 2023, the US government’s Bureau of Transportation Statistics reported that the number of passengers carried by US airlines rose by 30% from 658 million in 2021 to 853 million in 2022. Regionally, Asia-Pacific was the world’s largest airline market in 2023, and it is also projected to be the fastest-growing region in the airline market study throughout the forecast year.
Furthermore, the booming airline market is also being driven by the growing tourism market. For instance, in December 2022, the New Zealand government ministry, the Ministry of Business, Innovation, and Employment, reported that tourism spending in the country hit $26.5 billion, up 2.7% from $704 million a year before. Most importantly, arrivals of foreign visitors to New Zealand jumped by 335.3% to 229,370.
Consumer confidence in leisure travel is still high. Jamie Baker, analyst for aircraft leasing and U.S. airlines states: “Our prevailing thesis is that premium and international demand for air travel remains in the lead.” Nonetheless, limited capacity and lower costs are two challenges that airlines around the globe are dealing with. On the other hand, in China, the rate of domestic passenger yield is anticipated to stay high, while the rate of outbound tourism is projected to increase in the upcoming months. The IATA has raised the industry’s projected profit for 2024 in Asia Pacific by almost 18%. According to its longer-term projections, Asia Pacific will have the fastest global growth in air travel demand, with a passenger CAGR of 5.3% over the next 20 years.
Meanwhile, the US airlines have emphasized debt reduction, which should assist in strengthening their balance sheets and credit ratings over time. The domestic industry reported a total debt of $143 billion at the end of 2023, a decline of around 15% from 2021 levels. Investors who keep a long-term perspective and diversify their portfolios may gain from the industry’s revival and expansion in the future years.
With that said, here are the 10 Best Airline Stocks To Buy According To Short Sellers.
An aerial view of a Hawaiian Airlines plane flying high overhead, with a stunning view of an island below.
Methodology:
We sifted through holdings of airline ETFs and online rankings to form an initial list of 20 airline stocks. Then we selected the 10 stocks that had the lowest percentage of their shares shorted. The stocks are ranked in ascending order of the lowest percentage of their shares shorted. We’ve also mentioned the number of hedge funds that have long positions in these stocks as of Q2, 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)
10. Southwest Airlines Co. (NYSE:LUV)
% of shares shorted: 7.33%
Number of Hedge Fund Holders: 23
Southwest Airlines is the largest domestic airline company in the United States in terms of passenger volume, renowned for its low-cost air travel. The airline company has nearly 800 aircraft in its all-Boeing 737 fleet. Despite offering some longer routes and a few advantages for business travelers, the airline primarily specializes in short-haul, leisure flights operated in a single, open-seating cabin format on a point-to-point basis.
The company, under pressure from investors and difficult business circumstances, is going through major adjustments. The airline, which has been well-known for its open seating policy since the 1970s, stated that it will be discontinuing this distinctive characteristic as part of a larger campaign to rebrand. Boeing’s delivery delays have increased sales and expense constraints, which has further stressed Southwest’s profits.
Due to industry-wide overcapacity in the domestic market, LUV is also facing pricing pressure, which has caused its stock value to drop by 30% over the last two years, while the S&P 500 increased by 37% during that time. As a result, the stock fell 67% off the market.
Elliott Investment Management, an activist investment firm, is advocating for leadership transitions at Southwest, claiming that new ideas are necessary for the company to stay competitive. In response, CEO Bob Jordan stressed the company’s dedication to change, citing the implementation of assigned seating and premium, longer-legroom seats, claiming that these features are desired by 86% of prospective passengers.
In spite of these difficulties, Southwest’s shares increased by 6% after their Q2 2024 results release. In addition, the airline declared that, subject to FAA permission, it will begin operating overnight flights in February 2025 and take reservations for new cabin layouts. The Dallas-based airline operator announced record sales of $7.35 billion for the second quarter of 2024, up 4.5% from the previous year. However, profitability fell by more than 46% to $367 million. A crucial pricing indicator for the airline, revenue per available seat mile, decreased by 3.8%.
Analysts are still skeptical; Thomas Fitzgerald of TD Cowen is predicting significant losses in the most recent quarter and breakeven results for Q4 2024.
However, it has only 7.33% of its shares shorted. Moreover, Insider Monkey monitored that 23 hedge funds out of the 912 hedge funds held a position in Southwest Airlines Co. (NYSE:LUV) as of the end of the second quarter of 2024. Paul Singer’s Elliott Management is the largest stakeholder in the company, with 6,000,000 shares worth $171.66 million.
9. Sun Country Airlines Holdings, Inc. (NASDAQ:SNCY)
% of shares shorted: 6.80%
Number of Hedge Fund Holders: 13
Renowned for its affordable and top-notch service, Sun Country Airlines Holdings, Inc. (NASDAQ:SNCY) has two main business categories: passenger and cargo, and it functions as a low-cost airline.
The airline company serves both group and leisure passengers in the passenger market with its Scheduled Service and Charter Service offerings. On the other hand, the cargo section offers air cargo services through significant collaboration with Amazon. Popular locations in the United States, Mexico, Central America, Canada, and the Caribbean are all covered by Sun Country Airlines.
In its 2024 second-quarter results call, the company reported a mixed financial performance, with growth in some divisions despite larger industry headwinds. The company recorded a 2.6% decrease in overall revenue YoY, of which 7.2% came from scheduled services. Revenues from cargo and charter, however, increased, climbing 1.7% and 2.8% YoY, respectively. Sun Country forecasts a robust winter season for leisure travel, with a mid-single-digit capacity increase on the horizon and fare pressure to lessen.
Thomas Fitzgerald has maintained a Buy rating on the stock, citing the company’s strong growth potential and strategic change toward more profitable cargo activities. The actual focus is on the airline company’s long-term strategy, especially its goal to increase cargo flying, which is predicted to dramatically improve its financial performance by mid-2025, even though the airline’s Q2 2024 results fell short of projections.
Fitzgerald projects that cargo sales will increase from roughly 10% in 2024 to approximately 20% by 2026, doubling from that amount. It is anticipated that this change will strengthen the airline’s overall economy and lay a solid basis for its future expansion.
The Minnesota-based airline company’s cautious approach to financial management is demonstrated by its dedication to upholding a solid balance sheet with little net leverage. This careful financial handling helps Sun Country create a significant amount of free cash flow and puts it in a better position to handle the difficulties encountered by American leisure carriers. The stock’s attractiveness is further increased by the anticipated increase in free cash flow, which is fueled by growing cargo operations and is viewed as a major factor in prospective capital returns to shareholders.
The possibility of block sales by Apollo, a sizable shareholder, might spur share price growth and present investors with attractive entry positions. These elements, along with Sun Country Airlines Holdings, Inc. (NASDAQ:SNCY)’s strong position in the market and clear strategic direction, support Fitzgerald’s optimistic assessment and his buy recommendation for the shares.
It is one of the Best Airline Stocks To Buy According To Short Sellers, with only 6.80% of shares shorted. The 5 analysts have a buy rating and an average target of $19.4, an upside of 91.51% from the current stock price of $10.13.
8. Frontier Group Holdings, Inc. (NASDAQ:ULCC)
% of shares shorted: 6.43%
Number of Hedge Fund Holders: 16
Low-cost passenger airline services are offered to leisure passengers by Frontier Group Holdings, Inc. (NASDAQ:ULCC). About 136 Airbus single-aisle aircraft, including eight A320ceos, 82 A320neos, 21 A321ceos, and 25 A321neos, make up its fleet. The company provides services to approximately 90 airports in the US and to other locations in the Americas.
In an attempt to maintain its status as America’s low-cost airline operator after a failed merger with Spirit Airlines, Frontier Group Holdings Inc. intends to increase its capacity by 10%-20% per year for the next ten years. To gain market share in the face of an economic downturn and competitors’ capacity reductions, the Colorado-based airline, which is 82% owned by Indigo Partners, plans to lower tickets, increase non-ticket revenue, and utilize its pilot pool.
The company announced a better-than-expected profit for the second quarter of 2024. This was fueled by successful cost-control initiatives like network simplification and profitable sale and leaseback transactions. LSEG data shows that Frontier earned an adjusted 14 cents per share, above Wall Street’s projected earnings of 12 cents per share. The airline’s cost per available seat mile (CASM) came in at 8.98 cents, down 6% from the prior year.
The domestic market has experienced an oversupply of seats, pushing rates, especially at the lower end of the market, despite a strong summer travel season, with U.S. airlines forecast to transport 271 million passengers per A4A, a 6.3% rise from last year. As a consequence, Frontier declared that 54 Airbus jet deliveries will now take place between 2029 and 2031 as opposed to the original 2025-2028 timeframe. This is a sensible approach given that other airlines, such as JetBlue, have also delayed aircraft deliveries to increase profitability.
Barclays analyst Brandon Oglenski maintained a Buy rating and a $6.00 price target on Frontier Group Holdings. However, the price target was lowered from $6.50 to $5.50 by Bank of America Securities analyst Andrew Didora, who maintained a Hold rating.
With its planned delay of aircraft deliveries, good profit margin, and solid cost control measures, Frontier Group Holdings, Inc. (NASDAQ:ULCC) is one of the Best Airline Stocks To Buy According To Short Sellers, with ONLY 6.43% of shares shorted.
7. Alaska Air Group, Inc. (NYSE:ALK)
% of shares shorted: 6.29%
Number of Hedge Fund Holders: 30
When it comes to the number of scheduled passengers it carries, Alaska Air Group, Inc. (NYSE:ALK) is among the “biggest airlines worldwide.” Alaska and Horizon are the two airlines that the company runs. McGee Air Services, a provider of aviation services, is also included. Three segments comprise its operations: Mainline, Regional, and Horizon.
Offering unique discounts on more than 900,000 hotels and vacation rentals worldwide, the airline company and Expedia Group have recently partnered to launch Stays by Alaska Vacations.
Last month, Analyst Andrew Didora of Bank of America Securities maintained his Buy rating on Alaska Air Group, Inc. (NYSE:ALK), citing the company’s solid financial standing and advantageous position in the market.
The airline’s efficient cost control allowed its second-quarter 2024 EPS to outperform Wall Street consensus and Didora’s projections. The company’s revenue expectations are still strong despite a less optimistic third-quarter EPS estimate, suggesting resilience and possible growth against anticipated seasonal decreases.
One of the biggest airlines worldwide, ALK has an attractive value, trading at $35.72, close to historically low levels, and its strong West Coast network helps make up for its exposure to challenges from excessive capacity elsewhere.
Analyst Didora’s optimistic assessment is supported by the strengthening domestic revenue environment, even with the anticipated higher costs resulting from a new flight attendant agreement. Rather than a decline in the company’s fundamentals, the recent labor agreement is the reason for the tightened full-year earnings guidance. This cautious approach is anticipated to be transitory, preserving optimism in the airline and supporting the possibility of stock appreciation.
Analysts are bullish on the stock. Barclays also gave the company a Buy rating with a $58.00 price objective. Citing solid profitability, strategic moves like the Hawaiian Airlines acquisition, and favorable margin performance, Citi analyst Stephen Trent kept a Buy rating on Alaska Air with a $54.00 price objective. Bank of America Securities has also given the stock a Buy rating with a $50.00 price objective, stressing its competitive position and growth prospects.
ALK is one of the Best Airline Stocks To Buy According To Short Sellers with only 6.29% of shares shorted. ALK has hedge fund sentiments of 30 in Q2 2024. Ken Griffin’s Citadel Investment Group is the largest shareholder in the company, with 3,905,807 shares worth $157.79 million, as of Q2, 2024.
6. Air Transport Services Group, Inc. (NASDAQ:ATSG)
% of shares shorted: 5.85%
Number of Hedge Fund Holders: 14
Air Transport Services Group, Inc. (NASDAQ:ATSG) operates airlines, leases aircraft, maintains aircraft, and provides various support services, mostly to the package delivery and cargo transportation markets. CAM, ACMI Services, and MRO Services are the three divisions through which it functions.
Stock prices spiked in Q1 2024 when ATSG signed a new deal with Amazon to sail ten more freighters. Following the company’s Q2 2024 results, Truist analyst Michael Ciarmoli raised the company’s price objective for the shares to $15 from $14 and maintained a Hold rating.
A revenue miss was offset by an EBITDA and EPS beat, as well as an increase in the 2024 free cash flow, EPS, and EBITDA outlook. While reduced block hours and higher costs hampered ACMI performance in Q2 2024, demand for freighters remains strong, with the Cargo Aircraft Management segment expecting to place more aircraft in the rest of the year.
The cost of converting aircraft has gone up, which has resulted in higher fleet production costs. Furthermore, the company’s total profitability may be impacted by increased depreciation expenses brought on by the aging of the aircraft fleet.
Positively, Air Transport Services Group, Inc. (NASDAQ:ATSG) has increased its revenue stream by successfully growing its leasing business by adding four more freighters that are leased to outside clients. In addition, the company increased its full-year guidance, demonstrating its confidence in both the prospects for future growth and its present performance.
ATSG is one of the Best Airline Stocks To Buy According To Short Sellers with 5.85% of shares shorted. There are 6 analysts who have collectively rated the stock as a “buy.” The average price objective indicates a possible gain of 28.85% from the current stock price of $16.43.
The company has hedge fund sentiments of 14 in Q2 2024. D. E. Shaw’s D E Shaw is the largest shareholder in the company, with 1,217,665 shares worth $16.89 million.
5. Delta Air Lines, Inc. (NYSE:DAL)
% of shares shorted: 4.76%
Number of Hedge Fund Holders: 51
As a legacy carrier, Delta Air Lines, Inc. (NYSE:DAL) is one of the biggest airlines in the US. The Georgia-based company offers cargo and passenger air transportation on a scheduled basis. The segments for airlines and refineries handle its operations.
Despite a 30% decline in net profitability, DAL reported a solid second quarter of 2024 fueled by record revenue. The company maintained its adjusted earnings prediction for the entire year, estimating between $6 and $7 per share, despite the decline in profits. In light of the airline industry’s struggles with rising expenses and more capacity, fares have decreased over the previous year.
Ed Bastian, CEO of Delta, highlighted the airline’s strong performance in spite of market difficulties. The airline company predicts record revenue for the third quarter, driven by strong demand for summer travel. DAL has managed to stay “fairly well insulated” from industry overcapacity because of its emphasis on premium seats and other high-revenue streams.
While sales of coach tickets increased little, premium ticket revenue for the Georgia-based airline company increased by 10% from last year. Travel abroad has been robust, especially to Paris, but the Summer Olympics are predicted to have a minor effect on trans-Atlantic sales.
The lucrative agreement between Delta and American Express is still going strong; this year’s investment of $1.9 billion is up 9% from the previous one. Along with big free cash flow projections, the airline hopes to make up to $4 billion this year.
Oakmark Fund stated the following regarding Delta Air Lines, Inc. (NYSE:DAL) in its first quarter 2024 investor letter:
“Delta Air Lines, Inc. (NYSE:DAL) is a leading global airline. Of the big three U.S.-based airlines (Delta, United and American), we see Delta as the most competitively advantaged. We believe the company’s years of industry-leading operational performance and investments in the customer experience have established Delta as the premium brand in the industry. We also think its geographically optimal hubs, high local market share, robust loyalty program and unique corporate culture all support healthy returns on capital. Delta currently trades at 6x our estimate of normalized earnings per share. We believe this is an attractive valuation for a competitively advantaged and growing business in an out-of-favor industry.”
Despite recent operational difficulties, TD Cowen analyst Thomas Fitzgerald CFA kept a “Buy” rating on Delta Air Lines with a $59.00 price target, highlighting the airline’s resilience and long-term development potential. Additionally, Citi also maintained its Buy rating with a $65.00 price target and remains bullish about the company’s profitability and recovery.
