The aviation sector wasn’t short of optimism heading into the new year as air travel demand reached pre-covid highs and the holiday season showed promise. That optimism is now turning into reality as Delta Airlines announced its Q4 earnings result and surprised to the upside. The announcement has spurred a rally across airline stocks as expectations of other companies posting an earnings beat rise.
Delta reported improved operating margins of 12% vs 9.9% from a year ago. It improved the revenue per available seat mile from $0.1995 a year ago to $0.2004 in the last quarter. All of its international regions showed sequential improvement as revenue generated from international passengers grew at 6%. The company has also improved its guidance for the first quarter to $0.85 at the midpoint to the prior $0.76.
We now look at how this may affect other stocks across the industry.
10. Sun Country Airlines (NASDAQ:SNCY)
Sun Country Airlines offers air cargo, chartered plane, and passenger services in America as well as internationally. Its two main segments are passenger and cargo. As the broader sector is expected to benefit from the surging air travel demand, SNCY is set to be a beneficiary as well.
The stock has just hit its 52-week highs after trading sideways for most of the last year. This breakout could allow traders to benefit from the current uptrend across the sector, spurred by Delta Airlines’ impressive earnings report.
Last year, the company entered into a revised partnership with Amazon. Sun Country Airlines has operated 12 Boeing 737s on behalf of Amazon for the last four and a half years. It now operates 20 such planes according to the revised terms of the partnership. The company expects cargo flight hours to go up by over 60% in 2025, though they should then settle at an annual growth of 14% going forward.
9. flyExclusive Inc. (NYSEAMERICAN:FLYX)
flyExclusive owns and operates private jets in the US, in addition to offering aviation-related services. Its peers FlexJet and NetJets have shown massive growth in the last year and are also profitable. The market should continue to improve in the coming month and historically, private aviation follows this economic growth. flyExclusive is set to benefit from this trend in 2025.
The North Carolina-based company is short on cash and carries share dilution risk, but can turn things around if it can execute its plans. It is adding more efficient jets to its fleet and replacing the non-performing ones, the effect of which should become apparent this year. Investors would ideally want to wait for Q4 results before deciding if they want to be invested in the company.
8. Alaska Air Group (NYSE:ALK)
2025 will be the first full year of operations for Alaska Air Group since acquiring Hawaiian Airlines. The next 3 years look promising for the airliner after it revised its earnings guidance upward on its Investor Day last month. By 2027, the company expects to grow its margins to 11%-13% on the back of synergies from the Hawaiian Airlines acquisition. It expects about $300 million in revenues from the synergies in addition to $200 million saved via reduced interest costs and efficiencies from scaling operations.
The company’s current margins stand at 3%-4%, giving investors a good chance of a potential re-rating going forward if it can achieve its targets. However, investors must note that the recovery to 11%-13% levels will bring the company to the same level it was at pre-pandemic. This would be a tough task considering how far the costs have gone up.
The plan to increase the premium seating mix to 29% to generate additional revenue will be one way to achieve its 2027 objectives. If the company is able to pull off this plan, the upside is huge.
7. SkyWest Inc. (NASDAQ:SKYW)
SkyWest Inc. was another airline stock that ran up massively in 2024. Even in the first few days of trading in 2025, the stock is already up 10%. This increasing price has made the valuation a bit expensive for investors’ liking, though the stock is fundamentally strong enough to support these valuations.
For the last 7 quarters, SKYW has been surpassing analyst estimates. Its Q3 earnings report showed a 19% topline growth, surpassing analyst revenue estimates by $16.6 million. Even the EPS came in ahead of expectations, though it was partially supported by the stock buybacks. On the guidance front, the company’s optimism related to full-year block hours is impressive. It first guided for an 8% growth at midpoint in Q1 last year. In the subsequent quarters, the growth target was revised to 10% and 13% respectively.
Backed by these positive developments, the stock continues to rise. There’s no doubt 2025 is set to be a great year for the company. The only question is how much of that optimism is already priced in at these levels.
6. Allegiant Travel Company (NASDAQ:ALGT)
Allegiant Travel isn’t the most sought-after airline stock. However, it had an interesting 2024. By August 2024, the stock was down as much as 50%. It has been on a crazy ride since, nearly tripling in a matter of 5 months. It is this uptrend that has helped the stock make it to our top 10 list.
When the stock was getting hammered last year, the company was reporting revenue and earnings beat. It was reducing its expenses and increasing asset efficiency, eventually resulting in improved profit margins. Even its credit card business, which the company operates in partnership with the Bank of America, showed a 34% YoY growth.
There’s a catch though. The income from the company’s credit card operations formed three-quarters of its total operating income. This shows how its airline business isn’t doing as well as it should and also explains why the stock didn’t perform well in the first half of last year. As travel demand returned, the stock faired better. If this demand continues, there’s no reason why the stock can’t continue its performance in 2025.
5. JetBlue Airways Corporation (NASDAQ:JBLU)
JetBlue continued to post a loss last year. However, the company continues to propel itself forward as showcased by its 50%+ returns in a year. One of the reasons for this outperformance was its healthy balance sheet. The company has $4.1 billion in cash and financial support, which helps it focus on its business without worrying about the financials.
JBLU’s bullish thesis is all about its JetForward plans for 2027. It aims to achieve $900 million in EBIT by that year, as promised by the company’s CFO Ursula Hurley:
As I look to next year, I remain confident we have the right foundation to begin delivering results on our $800 – $900 million EBIT target.
The current market cap of just under 2.7 billion means the company is trading at an EBIT multiple of just 3! This is a great value that could bring massive returns in 2025 if the stock re-rates.
4. Southwest Airlines (NYSE:LUV)
A subpar performance in 2024 continues Southwest Airlines’ slump in the past few years. Once known as one of the most efficient and profitable airlines, LUV has fallen out of favor with investors and is making significant strategic changes to gain back both travelers’ and investors’ trust.
One of the drivers of LUV’s growth in 2025 will be the addition of redeye flights. A redeye flight is one where the flight takes off late in the evening or at night and arrives at its destination in the early hours of the morning. In the past, the airline has not run these flights because its business model predominantly worked on running shorter affordable flights. Its systems did not support these flights and its labor contracts also didn’t allow it.
In February 2025, LUV will be able to run its first redeye flight, slowly expanding from major airports across the East and West Coasts to other destinations. At the same time, it will trim its intra-Hawaii flights. On the product level, LUV could start monetizing the more preferred seats within its planes. This avenue has not yet been tapped by the company but 2025 will most likely be the year when the company starts generating revenue from extra legroom and priority boarding, like many other airlines do.
3. American Airlines (NASDAQ:AAL)
American Airlines is overhauling its fleet in 2025. It will receive the Airbus A321XLR jet this year and use it on its premium transcontinental and transatlantic routes. The jet will help the company improve its operations by flying to European markets in winter when the demand is low and rotating with the widebody jets for flights to Europe and Latin America.
The company also boats an exclusive Cobrand credit card partnership with Citibank. With this new deal, the airline won’t have to deal with Barclays anymore. Barclays was one of the partners in its previous credit card program together with Citibank. This will help the company get a better share of profits than before. The financial benefits of this deal may not become apparent in 2025 but the new relationship will gradually come into effect over the course of the year.
While high debt and lower earnings than its peers are a cause for concern, we believe it is priced into the stock as it is valued lower than the likes of Delta, Southwest, and United Airlines.
2. United Airlines (NASDAQ:UAL)
United Airlines stock also surged after the earnings report of Delta Airlines. The company’s stock produced impressive returns of 138% last year, making it the 5th best-performing stock in the S&P 500. That trend is poised to continue in 2025.
Its 2025 EPS estimates stand at around $12, which means on a forward PE basis, the stock is trading at a multiple below 9. Moreover, the company has announced a new $1.5 billion share buyback program recently, which should help the company buy back about 5% of its total shares outstanding.
The company has a debt of over $25 billion against a cash balance of $14.4 billion. This may look worrisome, but the $10 billion in operating cash flow on an annual basis makes up for the extra debt on the books. UAL continues to be undervalued, though one could argue that airline stocks tend to remain undervalued for longer. The optimism caused by Delta’s earnings call should continue to drive the stock up till the company’s quarterly report comes out.
1. Delta Airlines (NYSE:DAL)
Delta Airlines opened up 6% from the previous day’s close on the back of its impressive earnings report. The company reported an EPS of $1.85 vs analyst estimates of $1.74. The EPS also showed significant growth in the prior year’s $1.28.
Air travel demand was healthy during the holiday season as depicted by Delta’s result. The demand was so strong that 4 of Delta’s top 10 days in terms of revenue generated came during the months of November and December.
CEO Ed Bastian expects the strong travel demand to continue heading into 2025. He believes Delta’s premium products and experiences attract customers. These customers could help the company deliver the best financial performance of the last 100 years in 2025. Considering the optimism, it is not surprising that the stock is attracting more and more investors today.
Delta Airlines is not on our latest list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 57 hedge fund portfolios held DAL at the end of the third quarter which was 51 in the previous quarter. While we acknowledge the potential of DAL as a leading investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as DAL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
