In this article, we will discuss: 12 Best Aviation Stocks to Buy According to Hedge Funds.
Aviation stocks are the shares of firms in the aviation industry, such as airlines, aircraft manufacturers, and airport operators.
The global lockdowns triggered by the pandemic caused significant disruptions to the travel industry. According to the International Air Transport Association (IATA), air travel worldwide decreased by 60% in 2020 as a result of the significant disruptions caused by the COVID-19 pandemic. There were only 1.8 billion passengers flying through 2020, down from almost 4.5 billion in 2019, according to the International Civil Aviation Organization (ICAO), while seating capacity dropped by about 50% in 2020.
Despite these challenges, the airline industry has regained stability as lockdowns have lifted and normalcy has returned. Verified Market Size estimated that the global airline market will increase at a compound annual growth rate (CAGR) of 3.21% from 2024 to 2031, from a 2023 valuation of $569.02 billion to $732.66 billion. The industry is mostly driven by the development of fuel-efficient aircraft and the use of sustainable aviation fuel (SAF). The Federal Aviation Administration (FAA) of the United States claims that the implementation of SAF could cut aviation emissions by as much as 80%, supporting the industry’s sustainability objectives and reducing operating expenses.
Currently, airlines are facing record demand. According to AAA, nearly 80 million people were anticipated to travel by road and air this Thanksgiving, with the number of travelers exceeding pre-pandemic levels. Seat occupancy on airplanes has increased from 74% in 2003 to 84% in the first ten months of this year. The seat occupancy rate jumped from 69% in 2004 to 79% this year, even during slower months like January. According to the Consumer Price Index, airfares rose by more than 10% between July and October as a result of the limited availability. Reduced competition and flight cuts by budget carriers, such as a 10% holiday reduction, have further reduced availability, raising prices and reducing the number of reasonably priced options.
U.S. Airlines and Aircraft Leasing Analyst Jamie Baker of J.P. Morgan claims,
“Our prevailing thesis is that demand for premium and international air travel continues to lead the market.”
The International Air Transport Association (IATA) forecasts that airlines will transport about 5 billion passengers by 2024. According to IATA’s 2024 forecasting, airlines should report net earnings of $30.5 billion this year, up from $25.7 billion in December. It was estimated that the industry’s overall revenues would increase by over 10% to a record $996 billion. The projected profit “is a great achievement considering the recent deep pandemic losses,” IATA Director General Willie Walsh said while addressing the annual general assembly of the trade association in Dubai. According to IATA, which has more than 300 members and accounts for 83% of all air traffic globally, North American airlines are expected to generate about half of all profits in 2024, with a projected surplus of $14.8 billion, while European airlines are expected to see an increase in profits of between $8.6 billion and $9 billion.
According to the International Air Transport Association (IATA), industry revenues will exceed $1.007 trillion, a 4.4% rise from 2024, and cross $1 trillion for the first time in 2025. It is projected that the number of passengers will reach 5.2 billion, which would be another significant milestone in the industry’s post-pandemic recovery.
Willie Walsh, IATA’s Director General stated:
“Looking at 2025, for the first time, traveler numbers will exceed five billion and the number of flights will reach 40 million. This growth means that aviation connectivity will be creating and supporting jobs across the global economy. The most obvious are the hospitality and retail sectors which will gear up to meet the needs of a growing number of customers. But almost every business benefits from the connectivity that air transport provides, making it easier to meet customers, receive supplies, or transport products. On top of this, growth in aviation also contributes to achieving almost all the UN’s Sustainable Development Goals (SDGs),”
With that said, here are the 12 Best Aviation Stocks to Buy According to Hedge Funds.
A commercial jetliner parked at an airport, reflecting the companies success in aviation.
Methodology:
We sifted through holdings of Airline ETFs and online rankings to form an initial list of 20 Aviation stocks. From the resultant dataset, we chose 12 stocks with the highest number of hedge fund investors, using Insider Monkey’s database of 900 hedge funds in Q3 2024 to gauge hedge fund sentiment for stocks. We have used the stock’s Revenue Growth Rate (year-over-year) as a tie-breaker in case two or more stocks have the same number of hedge funds invested.
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)
12. Frontier Group Holdings Inc. (NASDAQ:ULCC)
Number of Hedge Fund Investors: 15
Revenue Growth Rate (year-over-year): 7.91%
The mission of Frontier Group Holdings, Inc. (NASDAQ:ULCC), an ultra-low-cost airline, is Low Fares Done Right. There are 120 Airbus single-aisle aircraft in the company’s fleet, including 13 A320ceos, 82 A320neos, 21 A321ceos, and 4 A321neos. These aircraft’s utilization, seating arrangement, weight-saving strategies, and luggage handling have all helped the United States maintain its position as the most fuel-efficient in the world. One of the best airline stocks, Frontier Group Holdings Inc. (NASDAQ:ULCC), which offers passenger air transportation, is run as a single business unit.
In Q3 2024, Frontier Group Holdings, Inc. (NASDAQ:ULCC) reported a 6% YoY increase in sales to $935 million, along with improved liquidity and a 2.9% pre-tax income margin. Improved revenue strategies, expanded capacity, and a slowdown in industry capacity growth in the latter half of the quarter all contributed to the revenue rise. Highlights include improved financing capacity, fleet growth with five A321neo aircraft, and a 6% cost reduction per seat mile.
The business anticipates a revenue increase in Q4 2024, driven by capacity reduction, network redeployment, and loyalty program enhancements, with fuel costs estimated at $2.45-$2.50 per gallon.
Michael Linenberg, an analyst at Deutsche Bank, raised Frontier Group Holdings, Inc. (NASDAQ:ULCC) price target from $6 to $8 on December 11, 2024, and upgraded the stock from Hold to Buy. The analyst informed investors in a research note that the company is well-positioned to profit from an improving domestic market because 94% of its March quarter capacity was deployed in domestic markets. According to the firm, Frontier’s recent announcement that it will launch a first-class product in 2025 will enable it to increase its market share and complement its other premium offering, UpFront Plus, which will be moved a few spots behind first class.
Leonard A. Potter’s Wildcat Capital Management was the largest stakeholder in the company from among the funds in Insider Monkey’s database at the end of Q3 2024. It owns 28 million shares worth $150.13 million as of Q3.
11. Sun Country Airlines Holdings Inc. (NASDAQ:SNCY)
Number of Hedge Fund Investors: 15
Revenue Growth Rate (year-over-year): 17.35%
One of the Best Airline Stocks, Sun Country Airlines Holdings, Inc. (NASDAQ:SNCY), operates low-cost carriers. The company runs in two segments: Cargo and Passenger. Scheduled service and charter are the two internal passenger groupings in the passenger segment. Air cargo services are offered by the Cargo segment. The passenger segment generates the lion’s share of revenue.
With a record third-quarter revenue of $249 million, Sun Country Airlines Holdings, Inc. (NASDAQ:SNCY) had a 0.24% YoY increase. Despite obstacles like the Crowdstrike outage and hurricanes that affected operations, cargo revenue grew by 11.9% year over year, while charter revenue grew by 7.0%. For the ninth consecutive quarter, the business was profitable, with GAAP diluted EPS of $0.04 and adjusted EPS of $0.06.
The price objective for Sun Country Airlines Holdings, Inc. (NASDAQ:SNCY) was increased by Barclays from $20 to $24 on November 14, 2024. According to the firm, airline fundamentals will “turn sharply positive” in 2025 and would probably lead to a “much more favorable market perception for the group,” which might allow for significant share price growth for the leaders in the industry, such as Delta, United, and Alaska. In a research note, the analyst warns investors that a “powerful rally in airline equities looking into next year” may be fueled by the convergence of strengthening airline fundamentals and market optimism. The “winners will keep winning,” according to Barclays. As capacity growth slows in 2025, low-cost carrier rivalry shifts and the “moats grow deeper for the winners in the industry,” the company argues that airlines offer substantial upside potential.
Paul Reeder And Edward Shapiro’s PAR Capital Management was the largest stakeholder in the company from among the funds in Insider Monkey’s database at the end of Q3 2024. It owns 2.5 million shares worth $28 million as of Q3.
10. Air Transport Services Group Inc. (NASDAQ:ATSG)
Number of Hedge Fund Investors: 16
Air Transport Services Group, Inc. (NASDAQ:ATSG), a leading provider of aircraft leasing and air transportation services, specializes in medium wide-body freighter aircraft. Through its varied companies, it provides a distinctive Lease+Plus aircraft leasing possibility within the aviation industry. The North American and European markets account for the majority of the company’s sales. It is among the best airline stocks, having increased by more than 32% so far this year.
In the third quarter of 2024, Air Transport Services Group, Inc. (NASDAQ:ATSG)’s free cash flow improved dramatically, going from a negative $51.6 million to $86.4 million. Operating cash flow increased 15.35% year over year. Additionally, the business declared a final deal to be bought out by alternative investment firm Stonepeak for all cash for about $3.1 billion.
Air Transport Services Group, Inc. (NASDAQ:ATSG)’s leasing division benefited from strong demand, with four Boeing 767-300 freighter leases signed in the third quarter. However, third-quarter profitability was impacted by higher expenses and fewer block hours flown. By the end of 2024, the firm intends to sign three additional leases for freighters owned by CAM and expects significant benefits in its ACMI Services division as a result of contractual price increases.
On November 5, 2024, Air Transport Services Group, Inc. (NASDAQ:ATSG) announced that it had entered into an acquisition agreement with Stonepeak for $22.50 per share. Truist analyst Michael Ciarmoli increased the firm’s price target for the business from $15 to $22.50. In a research note, the analyst informed investors that Stonepeak’s implied take-out multiple for the deal is 20% lower than peers’, but this is likely justified given recent operating performance, pilot union contract unknowns, and greater exposure to older freighter platforms as opposed to newer passenger variant aircraft.
John Osterweis’s Osterweis Capital Management was the largest stakeholder in the company from among the funds in Insider Monkey’s database at the end of Q3 2024. It owns 29 million shares worth $29.80 million as of Q3.
