Major US airline stocks have soared in recent months as Wall Street grows more bullish on increased revenue from route expansions and growing demand for premium travel.
Delta (DAL) and United (UAL) stocks hit all-time highs as the broader market rose in the days following Donald Trump’s White House victory.
Year to date, Delta and United have gained 60% and 134%, respectively, handily beating the S&P 500’s (^GSPC) gain of more than 25%. American (AAL) has gained roughly 6% during the same period while rallying more than 50% since August.
Even shares of JetBlue (JBLU) and Frontier (ULCC) are positive for the year, despite failed consolidation attempts among the low-cost carrier players.
Airline industry watchers see a strong end-of-the-year finish for Delta, United, and American, despite ongoing industry challenges such as higher maintenance costs, increased pilot wages signed into contracts last year, and new fleet restraints due to production issues at Boeing (BA).
“These challenges are showing Wall Street and the people who are savvy that, ‘Hey, these companies are well managed,’” said Mike Boyd, president of aviation research and consulting company Boyd Group International.
Air travel is expected to reach all-time high levels this Thanksgiving holiday.
Starting Tuesday, the Transportation Security Administration projects it will screen 18.3 million people over the next seven days.
“I think we’re going to have a very strong end of the year for American, United, Delta — even Southwest … they’ve turned the corner,” Boyd said.
Part of the reason for the big carriers’ success has to do with increased demand for premium travel, which includes perks like extra legroom, refundable tickets, and early boarding. Analysts expect the higher margins from such offerings to boost earnings, which in turn could lift stocks.
The growing trend of charging more for perks like advanced seating, window seats, and extra legroom and bags has drawn criticism from a US Senate panel led by Democratic Sen. Richard Blumenthal. The lawmaker announced a hearing with airline executives next Wednesday to discuss what he calls “sky-high junk fees” in the legislators’ latest report.
Delta expects premium ticket revenue to exceed main cabin sales by 2027. Delta laid out plans to expand its offering to high-net-worth travelers at its Investment Day last week, with the company expecting 85% of seats added in 2025 to be premium.
“That premium consumer is doing well,” Delta CEO Ed Bastian said last Wednesday, pointing to millennials as the fastest-growing cohort in the travel spend category.
“The demand and the interest to be up front and to be sitting in the seats with the various ways in which they can get there and pay for it is like never before,” Bastian added.
A traveler walks with a suitcase past a Delta Air Lines gate at the Detroit Metropolitan Wayne County Airport in Romulus, Mich., Friday, Oct. 5, 2024. (AP Photo/Carolyn Kaster) ·ASSOCIATED PRESS
American Airlines has said its premium revenue rose 8% year over year in the third quarter. The company plans to grow its higher-tier seats by about 20% over the next two years through 2026.
“As we take a look at in the future, I think that customers are looking to having a more premium experience, we’re going to accommodate that they want more control,” American CEO Robert Isom told analysts during the company’s earnings call last month.
Travelers are flocking to more expensive seating because of convenience and reliability, said M&N Aviation airline consultant Sebastian Domaradzki.
“You get pre boarding, you get lounge access. The convenience of being able to change your light last minute without any fees … that’s really important to the business traveler and the high net worth traveler,” Domaradzki told Yahoo Finance.
Polaris open suites with lie-flat beds, the premium business class product of United. United Airlines Boeing 787 Dreamliner aircraft interior on April 20, 2024 (Nicolas Economou/NurPhoto via Getty Images) ·NurPhoto via Getty Images
“People want to be able to know they can get to where they need to get to without needing to worry about the financial performance of the airline and whether their ticket will be valid a few weeks from now,” Domaradzki said.
Low-cost carriers have been hit hard over the past year as travelers have opted for more international trips, and stiff domestic competition has made it hard to raise prices to offset rising maintenance costs and salaries.
Bigger carriers like United have been increasing their market share via more domestic routes.
Last week TD Cowen’s Tom Fitzgerald picked United as a Best Idea of 2025, based on its “domestic share gains, increasing corporate traffic, and maturing international routes.”
The analyst raised his price target on the stock to $125 from $100.
“The outlook for the broader industry has materially improved since mid-year due to substantial decreases in domestic capacity and fuel prices, as well as macroeconomic demand that looks to remain resilient in 2025,” he wrote.
A Delta Air Lines jet leaves the gate, Friday, July 19, 2024, at Logan International Airport in Boston. (AP Photo/Michael Dwyer, File) ·ASSOCIATED PRESS
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X at @ines_ferre.
