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3 Airline Stocks to Watch as the Industry Grapples With Headwinds
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The ongoing tensions between the United States and Iran have resulted in a sharp rise in oil prices, a key input cost for airlines. The ongoing uncertainty over talks between them has repeatedly put the fragile ceasefire under strain. Stocks in the Zacks Transportation - Airline industry have been badly hit by this uncertain scenario that has resulted in multiple flight cancellations and disruptions to connectivity. Crude prices have moved sharply on headlines tied to the Strait of Hormuz, a critical shipping route
Oil prices have remained elevated, currently fluctuating between $90 and $95 per barrel. 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. The upbeat air-travel demand witnessed during the Memorial Day weekend is also a positive for airline stocks. Notable players expected to withstand these challenges include American Airlines (AAL - Free Report) , Copa Holdings (CPA - Free Report) . and Allegiant Travel Company (ALGT - 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 the 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 from the pandemic lows, despite the current high oil price scenario.
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 prices. This northward movement in oil prices 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 in the event of the conflict persisting.
Uptick in Labor Costs: The increase in expenses on the labor front represents another challenge for airlines. For example, at American Airlines, salaries and related costs have increased 10.7% year over year in the first quarter of 2026. 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.
Upbeat Summer Travel – A Positive: Despite headwinds like high inflation, elevated fuel and labor costs, air-travel demand, particularly on the leisure front, remains healthy as exemplified by the upbeat Memorial Day weekend air travel scenario. In fact, passenger volumes, despite high air fares, are expected to remain strong during the entire summer season. For example, American Airlines expects record travel during the summer season (May 21-Sept. 8). During the period, the airline expects to fly 75 million passengers across 750,000 flights, smashing its previous record established in 2019.
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 move reflects CPA’s intention to utilize free cash to enhance its shareholders’ returns.
Zacks Industry Rank Signals Dull Prospects
The Zacks Airline industry is a 23-stock group within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #233, which places it in the bottom 9% of 245 Zacks industries.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates murky 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 bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate.
Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. The industry's earnings estimate for 2026 has decreased 36.1% on a year-over-year basis.
Before we present a few stocks from the industry that you may want to hold on to, let’s take a look at the industry’s recent stock market performance and the valuation picture.
Industry Surpasses Sector but Lags S&P 500
Over the past year, the Zacks Transportation - Airline industry has gained 23.2% compared with the S&P 500 composite’s rise of 31.2%. The broader sector has gained 22.1% 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 0.57X compared with the S&P 500’s 5.27X. It is also below the sector’s forward-12-month P/S of 1.4X.
Over the past five years, the industry has traded as high as 0.88X, as low as 0.29X and at the median of 0.45X.
Forward 12-Month Price-to-Sales Ratio (Past Five Years)
3 Airline Stocks to Monitor Now
American Airlines is based in Fort Worth, TX. Strong air travel demand, particularly on the leisure front, despite high fuel costs, is aiding AAL. Efforts to broaden its network are also praiseworthy.
The company’s high debt levels are worrisome. The carrier’s earnings have surpassed the Zacks Consensus Estimate in three of the past four quarters (missing the mark in the other quarter). The average beat is 2.6%. American Airlines currently carries a Zacks Rank #3 (Hold).
Copa Holdings, based in Panama City, Panama, currently carries a Zacks Rank #3. The company is benefiting from strong domestic air travel demand owing to factors like regional economic expansion, its ability to adapt to market trends, and focus on innovative strategies.
Despite the tough conditions, the airline demonstrated resilience. Copa Holdings’ earnings beat the Zacks Consensus Estimate in three of the past four quarters (missing the mark on the other occasion). The average beat is 6.5%. The Zacks Consensus Estimate for current and next-year earnings has been revised 0.7% and 4.7% upward over the past 60 days, respectively.
Price and Consensus: CPA
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 second quarter of 2026 with a fleet size of 125.
ALGT’s earnings surpassed estimates in three of the last four quarters and missed the mark once. The average beat was 21.9%. Allegiant currently carries a Zacks Rank #3.
Price and Consensus: ALGT
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3 Airline Stocks to Watch as the Industry Grapples With Headwinds
The ongoing tensions between the United States and Iran have resulted in a sharp rise in oil prices, a key input cost for airlines. The ongoing uncertainty over talks between them has repeatedly put the fragile ceasefire under strain. Stocks in the Zacks Transportation - Airline industry have been badly hit by this uncertain scenario that has resulted in multiple flight cancellations and disruptions to connectivity. Crude prices have moved sharply on headlines tied to the Strait of Hormuz, a critical shipping route
Oil prices have remained elevated, currently fluctuating between $90 and $95 per barrel. 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. The upbeat air-travel demand witnessed during the Memorial Day weekend is also a positive for airline stocks. Notable players expected to withstand these challenges include American Airlines (AAL - Free Report) , Copa Holdings (CPA - Free Report) . and Allegiant Travel Company (ALGT - 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 the 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 from the pandemic lows, despite the current high oil price scenario.
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 prices. This northward movement in oil prices 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 in the event of the conflict persisting.
Uptick in Labor Costs: The increase in expenses on the labor front represents another challenge for airlines. For example, at American Airlines, salaries and related costs have increased 10.7% year over year in the first quarter of 2026. 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.
Upbeat Summer Travel – A Positive: Despite headwinds like high inflation, elevated fuel and labor costs, air-travel demand, particularly on the leisure front, remains healthy as exemplified by the upbeat Memorial Day weekend air travel scenario. In fact, passenger volumes, despite high air fares, are expected to remain strong during the entire summer season. For example, American Airlines expects record travel during the summer season (May 21-Sept. 8). During the period, the airline expects to fly 75 million passengers across 750,000 flights, smashing its previous record established in 2019.
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 move reflects CPA’s intention to utilize free cash to enhance its shareholders’ returns.
Zacks Industry Rank Signals Dull Prospects
The Zacks Airline industry is a 23-stock group within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #233, which places it in the bottom 9% of 245 Zacks industries.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates murky 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 bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate.
Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. The industry's earnings estimate for 2026 has decreased 36.1% on a year-over-year basis.
Before we present a few stocks from the industry that you may want to hold on to, let’s take a look at the industry’s recent stock market performance and the valuation picture.
Industry Surpasses Sector but Lags S&P 500
Over the past year, the Zacks Transportation - Airline industry has gained 23.2% compared with the S&P 500 composite’s rise of 31.2%. The broader sector has gained 22.1% 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 0.57X compared with the S&P 500’s 5.27X. It is also below the sector’s forward-12-month P/S of 1.4X.
Over the past five years, the industry has traded as high as 0.88X, as low as 0.29X and at the median of 0.45X.
Forward 12-Month Price-to-Sales Ratio (Past Five Years)
3 Airline Stocks to Monitor Now
American Airlines is based in Fort Worth, TX. Strong air travel demand, particularly on the leisure front, despite high fuel costs, is aiding AAL. Efforts to broaden its network are also praiseworthy.
The company’s high debt levels are worrisome. The carrier’s earnings have surpassed the Zacks Consensus Estimate in three of the past four quarters (missing the mark in the other quarter). The average beat is 2.6%. American Airlines currently carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
Price and Consensus: AAL
Copa Holdings, based in Panama City, Panama, currently carries a Zacks Rank #3. The company is benefiting from strong domestic air travel demand owing to factors like regional economic expansion, its ability to adapt to market trends, and focus on innovative strategies.
Despite the tough conditions, the airline demonstrated resilience. Copa Holdings’ earnings beat the Zacks Consensus Estimate in three of the past four quarters (missing the mark on the other occasion). The average beat is 6.5%. The Zacks Consensus Estimate for current and next-year earnings has been revised 0.7% and 4.7% upward over the past 60 days, respectively.
Price and Consensus: CPA
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 second quarter of 2026 with a fleet size of 125.
ALGT’s earnings surpassed estimates in three of the last four quarters and missed the mark once. The average beat was 21.9%. Allegiant currently carries a Zacks Rank #3.
Price and Consensus: ALGT