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Fly Higher in 2019 With These 5 Terrific Airlines Stocks

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The airlines industry had a disappointing 2018 owing to stiff rise in crude oil prices which reached record levels in October. However, decline in oil prices and strong U.S. economy has helped the airline carriers to rebound in 2019. Year to date, the airline industry is up 10.5%, higher than the benchmark S&P 500’s growth of 9.5%.

The International Air Transport Association ("IATA") provided a lower fuel cost projection for 2019. Moreover, a dovish monetary stance of the Fed will help the airline industry in a big way. At this stage, it will be prudent to invest in airline stocks with a favorable Zacks Rank.

Bullish IATA Forecast for 2019

In December 2018, the International Air Transport Association provided an encouraging outlook for the global airline industry for 2019. IATA predicts global net profit of $35.5 billion for the industry in 2019. This is much higher than the profitability forecast of $32.3 billion for 2018. This bright projection can be attributed to strong demand for air travel.

Global net profit margin is expected to improve marginally to 4% in 2019 from 3.9% estimated in 2018. The overall industry revenues are expected to reach $885 billion in 2019 compared with $821 billion anticipated in 2018.

Passenger numbers are expected to reach 4.59 billion compared with 4.34 billion in 2018. Moreover, 65.9 million cargo tonnes are likely to be carried in 2019 compared with 63.7 million in 2018. Average net profit per departing passenger is expected to go up $7.75 from $7.45 in 2018.

The IATA has forecasted that the average fuel cost in 2019 will be around $65 per barrel (Brent crude price) compared with average fuel cost of $73 per barrel in 2018. Average cost of jet fuel price is pegged at $81.3 per barrel in 2019 compared with $87.6 per barrel in 2018.

Moody’s Maintains Stable 2019 Outlook

In December 2018, Moody’s Investors Services maintains 2019 outlook for the global airline industry as stable. This stable outlook is driven by projections for around 8% operating margins for Moody’s-rated airlines through 2019, with U.S. carriers remaining the most profitable. Moody’s projects industry revenues to grow about 4%, offsetting higher labor and fuel costs. Steady global economic growth will support rising demand for air travel over the next 12 to 18 months.

US to Gain Most

The U.S. economy remains strong despite severe stock market volatility and geopolitical disturbances in 2018. The IATA has projected that the strongest financial result for airline industry in 2019 will come from North America, especially from the United States. Net profit is likely to grow up to $16.6 billion from $14.7 billion in 2018. Net margin is expected to reach 6% in 2019 compared with 5.7% in 2018.

Additionally, airlines industry is highly sensitive to interest rate risk. In January, the Fed refrained from raising rate after hiking it four times in 2018. Moreover, the central bank indicated that it will pursue a dovish monetary stance in 2019. Several airlines carry substantial debt and lease burdens. Consequently, a soft monetary policy will bode well with them.

Our Picks

A thriving and improving economy also supports the overall bullishness of the airline industry, as it implies that more passengers and cargos are being transported across the United States and internationally. Given this scenario, we suggest investors add these five airline stocks to their portfolios, each of which carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

The chart below shows price performance of our five picks in the last three months.

American Airlines Group Inc. (AAL - Free Report) operates as a network air carrier. It provides scheduled air transportation services for passengers and cargo. The company has expected earnings growth of 30.6% for current year. The Zacks Consensus Estimate for the current year has improved by 10.6% over the last 60 days.

JetBlue Airways Corp. (JBLU - Free Report) is a passenger carrier company providing air transportation services. The company has expected earnings growth of 34.2% for current year. The Zacks Consensus Estimate for the current year has improved by 23.1% over the last 60 days.

Spirit Airlines Inc. (SAVE - Free Report) operates as low-fare airline services. The company has expected earnings growth of 51.4% for current year. The Zacks Consensus Estimate for the current year has improved by 21.8% over the last 60 days.

United Continental Holdings Inc. (UAL - Free Report) provides air transportation services in North America, the Asia-Pacific, Europe, the Middle East, Africa, and Latin America. The company has expected earnings growth of 25% for current year. The Zacks Consensus Estimate for the current year has improved by 12.4% over the last 60 days.

Southwest Airlines Co. (LUV - Free Report) operates a passenger airline that provides scheduled air transportation services in the United States and near-international markets. The company has expected earnings growth of 21.2% for current year. The Zacks Consensus Estimate for the current year has improved by 8.4% over the last 60 days.

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