Airline Stocks — Are They A Buy Right Now, Or Are They Grounded?

Early January’s run-up in airline stocks signaled the industry might just be recovering from the Covid pandemic. Earnings reports suggested airlines are getting back to pre-pandemic levels, with air carriers reporting strong demand for air travel.

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Early in 2023, the number of people traveling by airplane is on par with pre-pandemic levels, according to Transportation Security Administration data. As more people take to the skies, airline stocks have also soared in the early part of the year.

American Airlines (AAL) stock has gained 32% since the start of January, while Delta Air Lines (DAL) is up around 15% for the month.

Southwest Airlines (LUV) has increased 9%, despite an operational meltdown, during the year-end holidays.

Spirit Airlines (SAVE) shares have edged up around 6%. Copa (CPA), the leading Latin American air carrier, is also on the upswing.

Some airline stocks have broken out past valid buy points.

IBD Stock Of The Day: See How To Find, Track And Buy The Best Stocks

The airline stock advance in January comes after many companies booked losses and suffered weather-related cancellations in December.

As airlines enter earnings season, the industry remains upbeat about demand and maintains that business is back to normal after nearly three years of Covid woes. However, concerns about inflation, global recession and subsequent Covid waves remain — and could negatively impact the industry and airline stocks.

So, given this backdrop, are any airline stocks buys or should airline stock exposure be grounded for now?

The Risks With Airline Stocks

Some things are out of anyone’s control. The coronavirus pandemic, for example, grounded global air travel to a halt.

Then, toward the end of 2022, the airline industry was just a fragment of the U.S. economy. Airlines were upended by freezing temperatures, high winds and snowfall from a massive winter storm that blanketed more than half of the U.S.

The storm forced much of the U.S. airline network to shut down. Most carriers recovered normal operations within days. But Southwest Airlines lagged far behind the rest of the airline industry, attempting to recover from weather disruptions which resulted in thousands of canceled flights.

In January, following December’s air travel fiasco, the Federal Aviation Administration also grounded thousands of flights across the U.S. for several hours after a key computer system failed. However airline stocks showed only a mild response.

Investors should remember the volatile nature of travel when thinking about adding exposure to airline stocks. One way to modestly diversify industry holdings is via the U.S. Global Jets ETF (JETS). The fund is up 17.8% so far in January; it fell 19% in 2021.

American Airlines Stock 

AAL shares have shot up 15% over the last seven. With the market now in a confirmed uptrend, American Airlines stock is up more than 25% from a late-December low and working on a third straight weekly advance.

American Airlines ranks seventh among the airline stocks in the Transportation-Airline industry group. AAL stock has a Composite Rating of 65. It has a 66 Relative Strength Rating, an exclusive IBD Stock Checkup gauging share-price movement. AAL has an EPS Rating of 78.

Early Thursday, American Airlines lifted Q4 guidance, citing robust demand and high airfares. The airline expects revenue to rise 16%-17% from Q4 2019. That is up from prior guidance of 11%-13%. It projects revenue per available seat mile will jump 24% from 2019 vs. a prior forecast for 18%-20%.

Is America Airlines Stock A Buy Right Now?

The air carrier also now expects earnings per share of $1.12-$1.17. That is up from 50 cents-70 cents prior. Analyst consensus targets 61 cents, according to FactSet. The company is expected to report Q4 results on Jan. 26.

American Airlines has said it expects demand to increase as Covid travel restrictions and testing requirements continue to be lifted worldwide.

In mid-October, Fort Worth, Texas-based American topped earnings estimates and reported record revenue in the third quarter. The air carrier’s third-quarter earnings come after American Airlines posted a profit of 76 cents per share in Q2, breaking a string of nine straight quarters of losses. Revenue also increased dramatically, ballooning 81% to $13.4 billion in the second quarter.

American Airlines stock on Tuesday retook support at its 200-day moving average for the first time since May. Shares broke above a down-sloping trendline earlier at around 14.50. That point, or the break above 200-day resistance around 14.75, could’ve provided early entries for aggressive, risk-tolerant investors.

The stock is now extended, so investors should wait for a possible handle to form on the 38-week consolidation.

Airline Stocks: Delta Air Lines Stock 

DAL shares have dropped around 1% since Jan. 10. Delta Air Lines stock had extended an eight-day rally that took shares above the 50-day and 200-day moving averages to the best level since June 2022.

Delta Air Lines stock has a Composite Rating of 84. Its Relative Strength Rating is 86 and its EPS Rating is 80.

The air carrier reported fourth-quarter earnings early Friday, after raising its Q4 guidance and giving a bullish 2023 outlook in mid-December, on the back of robust travel demand.

Earnings jumped 570% to $1.48 per share, above both analyst consensus and company guidance. Operating revenue came in at $13.44 billion, up 17.4% from the year-earlier period. Total adjusted revenue came in at $12.292 billion, a 30% jump over the prior year.

Going into the earnings report, analysts project Delta earnings per share will jump nearly 69% to $5.16 in 2023. They see revenue increasing 8% to $53.792 billion next year. On Dec. 14, Delta Air Lines guided 2023 earnings to nearly double to $5 to $6 per share.

A statement from Delta CEO Ed Bastian on Friday projected the company would grow 2023 revenue by 15% to 20%. Improvements in unit costs support a full-year outlook for earnings of $5 to $6 per share, “keeping us on track to achieve more than $7 of earnings per share in 2024,” Bastian said.

In 2023, Delta also expects to generate more than $2 billion of free cash flow, as it looks to further pay down debt. But CFO Dan Janki tempered expectations for the start of 2023.

DAL shares are climbing the right side of a deep cup base with a 46.37 buy point. Delta Air Lines stock is now above the midpoint of the left side of the base pattern, so watch for it to shape a possible handle.

United Airlines Stock

UAL shares leapt 9% over the last seven days. The stock strung together six straight sessions of gains and has retaken key averages. United Airlines stock has a 87 Composite Rating out of 99. United Airlines stock has a 92 Relative Strength Rating. The EPS rating is 78.

The airline is due to report Q4 earnings on Jan. 17 after the market close. Southwest is set to follow on Jan. 26 before the market open.

Back in October, United topped third-quarter expectations. The company also reported it expects adjusted EPS for Q4 in the range of $2.00-$2.25 per share. Total revenue per available seat mile is expected to be up 24%-25% compared with 2019.  The air carrier also expects jet fuel be around $3.61 per gallon in Q4.

United Airlines has also announced it plans to add new trans-Atlantic travel locations to its schedule, a sign it is ramping up flights in the aftermath of the Covid pandemic.

Beginning in the summer of 2023, United says it will add three new city destinations and six more flight options to popular destinations — including Rome, Paris, Barcelona, London and Berlin. United said in a press release it saw “historic levels of demand for travel to Europe in the summer peak, up 20% compared to 2019.”

In the second quarter, United earned $1.43 per share, up from a net loss of 3.91 per share in Q2 2021. Revenue ballooned 121% to $12.1 billion.

Like many air carriers, United had a run of losses during the Covid pandemic. With United’s Q3 earnings, the company posted consecutive profitable quarters for the first time since Q4 2019.

In early December, United Airlines stock staged a halting breakout from a 45.67 buy point in a long cup-with-handle base. As airlines stocks across the industry took a beating, the stock immediately fell more than 8% below the entry, triggering the automatic stop-loss rule. Since Jan. 3, United Airlines stock has rocketed almost 35%.

That has left the stock extended. It needs to consolidate and form a new, valid entry before it becomes a buy.

Airline Stocks: Copa Stock

Top-rated Copa is another airline stock worth considering. Copa stock has a 96 Composite Rating out of 99. It has a Relative Strength Rating of 88. Its EPS Rating is 80.

United Airlines and Copa have a strategic alliance, and both airline stocks sit on the IBD 50. Copa Airlines was founded in 1947 as the National Airline of Panama. Today it is a leading Latin American provider of airline passenger and cargo service. The Copa holding company has two principal operating subsidiaries, Copa Airlines and Copa Colombia.

Copa Stock Looks Set To Takeoff

From Q3 2021 through Q2 2022, Copa posted four quarters of triple-digit earnings growth. In Q3, Copa saw EPS balloon 316% $2.91.

Analysts expect another strong quarter when the airline stock reports on Feb. 14, with a forecast for 96% earnings growth. Wall Street is calling for an astronomical EPS increase of 13,884% for 2022. Analysts have Copa returning to earth in 2023 with a 26% rise in earnings.

Copa stock has advanced in January and is in the midst of a 46-week-long cup-with-handle base. Over the past week, Copa stock gained 6% and is now about 3% above its 89.27 buy point, according to MarketSmith analysis.

Airline Stocks: Southwest Stock 

LUV shares have lagged other airline stocks as it was battered by flight disruptions during the end of 2022. But Southwest stock has started to advance. Since Jan. 10, shares have gained 0.9%, finding resistance at the 50-day moving average.

The stock has been below its 200-day line since Dec. 14. It has repair work to do, but a jump back above the 200-day average could present an opportunity. LUV stock has a Composite Rating of 56. Its Relative Strength Rating is 37 and its EPS Rating is 78.

Are Airline Stocks Buys Right Now?

The market is in a confirmed uptrend, but IBD ratings for airline stocks are mixed. Earnings season is also now in full swing for the airline industry, adding some volatility to airline stocks. Investors eager to add exposure could step up once some airline stocks enter buy zones. But IBD advises investors to seek stocks with better ratings, and with Relative Strength Ratings that are closer to their highs.

So are airline stocks a buy? With the market in a confirmed uptrend, airline stocks are not a buy right now.

Please follow Kit Norton on Twitter @KitNorton for more coverage.

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