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3 Airline Stocks to Buy on A4A's Rosy Thanksgiving Forecast

According to a projection by Airlines for America (A4A), the trade organization for leading U.S. airlines, companies in the airline space are set to have a busy time in the 12-day Thanksgiving travel period (Nov 22-Dec 3). The projection indicates 3.7% more passengers flying to various destinations in the period compared to 2018.

The bullish forecast further confirms strong demand for air travel. Affordable ticket prices have contributed to the favorable projection. Needless to say, with the economy expanding at a steady pace and consumers remaining confident about their well-being, a greater number of Americans are opting for a vacation.

So, it makes sense to invest in airline stocks that can make the most of an upbeat A4A view.

A4A’s Projection

According to the forecast put forward by the Washington-based trade group, approximately 31.6 million passengers will travel on U.S. airlines during the Thanksgiving holiday period this year. The forecast implies that 2.63 million people will take to the skies per day compared with 2.55 million fliers per day in the same period last year. Moreover, Dec 1 is likely to be the busiest day for carriers ever, with 3.1 million people expected to take to the skies on that day.

To meet the surge in travel demand, U.S. carriers are increasing the number of available seats by 108,000 per day. In fact, they will be operating 859 more flights a day during the period compared to 2018.

Additionally, the robust financial health of most domestic carriers has prompted them to invest substantially in improving the flying experience of travelers, in a bid to stay afloat amid stiff competition. Driven by the above reasons, the 12-day period is likely to see 93,000 additional passengers taking to the skies per day on various U.S. carriers.

Passenger Revenues Likely to Get a Boost

The upbeat forecast implies that the already-strong passenger revenues will be augmented in the Thanksgiving holiday period. This should aid the top line of carriers significantly as passenger revenues account for a bulk of the top line of most airline companies.

For instance, passenger revenues at American Airlines AAL and Southwest Airlines LUV accounted for 91.9% and 92.6% of the top line, respectively, in the first nine months of 2019.

Bullish Forecast Coincides With Oil Price Decline

It is a well-known fact that fuel prices represent a substantial input cost for any airline company. Airlines have been well served in this regard as oil prices have declined approximately 10% over the past six months, mainly owing to the restoration of production capabilities of crude, following the drone attack on Saudi Arabia’s oil facilities in mid-September.

In fact, this drop in oil prices supported bottom-line growth in the third quarter of 2019. Airline heavyweights like Delta Air Lines DAL, American Airlines and United Airlines UAL reported year-over-year growth in third-quarter earnings due to low fuel costs.

Airlines Represent Solid Investment Opportunities

In view of the enthusiasm surrounding airline stocks, as pin-pointed in the write up, we believe that stocks from the space should grace one’s portfolio. However, picking winning stocks can be a difficult task.

This is where our VGM Score comes in handy. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select the winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.

We have narrowed down our search to the following stocks, each of which carries a Zacks Rank #2 (Buy) and VGM Score of A or B. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Apart from the favorable metrics, it is worth noting that the anticipated upsurge in traffic during the Thanksgiving travel period should propel growth at the carriers selected below, as passenger revenues account for the bulk of their top line. In view of this, adding these stocks to one’s portfolio further increases chances of generating higher returns. Additionally, all three stocks have outperformed the industry over the past six months.

 

United Airlines Holdings is based in Chicago and carries a VGM Score of A. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 2.3% upward over the past 60 days. The stock’s expected earnings growth rate for the current year is 31.2%.

Allegiant Travel Company ALGT, Las Vegas, NV, operates a low-cost passenger airline through its subsidiary Allegiant Air LLC and carries a VGM Score of B. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 4.9% upward over the past 60 days. The stock’s expected earnings growth rate for the current year is 43.2%.

Hawaiian Holdings HA, the parent company of Hawaiian Airlines, is headquartered in Honolulu County, HI. The stock, carrying a VGM Score of A, has seen the Zacks Consensus Estimate for current-year earnings being revised 14.8% upward over the past 60 days.

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Delta Air Lines, Inc. (DAL): Free Stock Analysis Report

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American Airlines Group Inc. (AAL): Free Stock Analysis Report

Allegiant Travel Company (ALGT): Free Stock Analysis Report

Southwest Airlines Co. (LUV): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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