Stocks in the Zacks Transportation - Airline industry have been badly hit by the intensifying US-Iran conflict. With the U.S.-Israel joint strikes on Iran disrupting travel and transportation across the Gulf region, there have been multiple flight cancellations. The closure of many important flight corridors is forcing carriers into longer, fuel-intensive routes, thereby putting a strain on their operations. Moreover, conflict-related supply fears have pushed up oil prices, significantly increasing operational expenses for airlines. High labor costs are also hurting bottom-line growth.

Despite these headwinds, the industry has shown resilience, particularly among companies focusing on growth strategies and operational efficiency. Notable players expected to withstand these challenges include Southwest Airlines (LUV Quick QuoteLUV - Free Report) , Copa Holdings (CPA Quick QuoteCPA - Free Report) and Allegiant Travel Company (ALGT Quick QuoteALGT - Free Report) .

About the Industry

The Zacks Airline industry players are engaged in transporting passengers and cargo to various destinations globally. Most operators maintain a fleet of multiple mainline jets in addition to several regional planes. Their operations are aided by their regional airline subsidiaries and third-party regional carriers. Additionally, industry players utilize their respective cargo divisions to offer a wide range of freight and mail services. The players invest substantially to upgrade technology. The industry, apart from comprising legacy carriers, includes low-cost players. The well-being of companies in this group is linked to the health of the overall economy. For example, the aviation space was one of the worst pandemic-hit corners, with passenger revenues taking a beating. However, air travel demand has improved. The focus on boosting cargo revenues is a positive, too.

Factors Relevant to the Industry's Fortunes

Surge in Fuel Costs: A Bane: The ongoing conflict in the Middle East has resulted in a sharp jump in oil price. Oil price has jumped in double-digits over the past month. This is naturally hurting the bottom line of airlines. This is because fuel expenses represent a key input cost for airlines. With most U.S. carriers having abandoned fuel hedging strategies, such an oil supply disruption has left them fully exposed to price spikes. This development may hurt the second-quarter earnings of airlines, particularly if the conflict persists.

Uptick in Labor Costs: The increase in expenses on the labor front represents another challenge for airlines. For example, at Southwest Airlines, salaries and related costs have increased 6% year over year in 2025. With U.S. airlines grappling with labor shortages, the bargaining power of various labor groups has naturally increased. As a result, we have seen pay-hike deals being inked in the space.  This is resulting in a spike in labor costs, limiting bottom-line growth in turn.  

Focus on Cost-Cuts to Drive Bottom Line: Despite signs of cooling inflation, the measure is still quite elevated. The industry has been experiencing significant levels of inflation, including higher prices for labor and fuel, as noted above. The industry players are focusing on cost-cutting measures and making efforts to improve productivity and efficiency to mitigate the weaker-than-expected demand scenarios. Driven by the cost-cutting efforts, ALGT reported better-than-expected results in the fourth quarter of 2025.

Strong Financial Returns for Shareholders: With economic activities gaining pace from the pandemic lows, more and more companies are allocating their increasing cash pile by way of dividends and buybacks to pacify long-suffering shareholders. This underlines their financial strength and business confidence.

Among airlines, CPA’s board of directors approved a dividend hike of 6.2%, thereby raising its quarterly cash dividend to $1.71 per share ($6.84 annualized) from $1.61 ($6.44 annualized). The raised dividend will be paid on March 13, 2026, to Copa Holdings’ stockholders of record at the close of business on Feb. 27. The move reflects CPA’s intention to utilize free cash to enhance its shareholders’ returns. 

 

Zacks Industry Rank Signals Bright Prospects

The Zacks Airline industry is a 24-stock group within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #28, which places it in the top 12% of 243 Zacks industries.

The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Before we present a few stocks that you may want to add to your portfolio, let’s look at the industry’s recent stock-market performance and its valuation picture. 

 

Industry Surpasses Sector but Lags S&P500

Over the past year, the Zacks Transportation - Airline industry has gained 15.7% compared with the S&P 500 composite’s rise of 23.2%. The broader sector has gained 12.7% in the said time frame.

One-Year Price Performance

 

Valuation Picture

The price/sales (P/S) ratio is often used to value airline stocks. The industry currently has a forward 12-month P/S of 0.5X compared with the S&P 500’s 5.01X. It is also below the sector’s forward-12-month P/S of 1.45X.

Over the past five years, the industry has traded as high as 1.12X, as low as 0.29X and at the median of 0.46X.

Forward 12-Month Price-to-Sales Ratio (Past Five Years)

3 Airline Stocks to Buy Now

Southwest Airlines is benefiting from its lean cost structure, expanding operations and strategic partnerships. Efforts to reward its shareholders also bode well. LUV no longer aggressively follows the practice of fuel hedging, having discontinued the practice last year. However, the low-cost carrier still has some hedging contracts. As a result, the negative impact of the Middle East conflict-induced fuel price increase is softer on the carrier than its U.S.-based peers.

LUV has an impressive earnings surprise history. The company's earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters (missing on the other occasion), delivering an average surprise of 253.9%. Southwest Airlines currently sports a Zacks Rank #1 (Strong Buy).

 You can see the complete list of today’s Zacks #1 Rank stocks here.

Price and Consensus: LUV

Allegiant Travel's unique business model, coupled with its low-cost nature, offers diversified revenue streams from leisure travel flights as well as multiple travel services and product offerings. Efforts to upgrade its fleet are praiseworthy as well. ALGT aims to end the first quarter of 2026 with a fleet size of 123.

ALGT’s earnings surpassed estimates in three of the last four quarters and missed the mark once. The average beat was 23.6%. Allegiant currently flaunts a Zacks Rank #1.

Price and Consensus: ALGT

Copa Holdings, based in Panama City, Panama, currently carries a Zacks Rank #2 (Buy). The company is benefiting from strong domestic air travel demand owing to factors like regional economic expansion, ability to adapt to market trends and its focus on innovative strategies.

Despite the tough conditions, the airline demonstrated resilience and beat the Zacks Consensus Estimate for earnings in each of the past four quarters. The average beat was 5.7%. The Zacks Consensus Estimate for current and next-year earnings has been revised 4.9% and 1.4% upward over the past 60 days, respectively.

 

Price and Consensus: CPA