At the stock market, 2024 could be considered a fabulously successful year for airlines, as six of the top seven carriers outperformed the S&P 500 Index. United shares, which led the charge, gained 135% as well as continued recognition that United is challenging Delta as the industry leader.
“United is better managed today that at any prior point post-merger (with Continental) in our view,” JP Morgan analyst Jamie Baker wrote in an end-of-year report. “United now firmly believes there is room for two premium airlines in the U.S.”
JP Morgan listed United as one of its “2025 Year Ahead Best Ideas” and as one of its top dozen consumer stock picks.
For the full year, besides the 135% gain in United shares, Alaska shares rose 66%; Delta rose 50%; JetBlue rose 42%; Frontier rose 30%; American rose 27% and Southwest rose 16%. The S&P 500 Index gained 23%.
The industry’s 2024 success and 2025 prospects reflect four clear trends.
- Supply Chain Woes
The top trend remains supply chain woes, with delays at Airbus, Boeing, engine makers and other suppliers. This may be the most important trend because, in truth, delays in aircraft delivery are saving the airline industry from itself.
Normally in prosperous times, airlines acquire airplanes and add routes, some of which turn out to be unprofitable. Also, employee costs rise due to added capacity and improved union contracts. This time, the contracts are clearly better, but capacity growth has slowed, despite strong demand.
“We can’t remember a time when industry dynamics have handcuffed management teams from impeding the bull market in airline equities,” Baker wrote in his report.
- Demand Remains Strong
Secondly, demand remains strong. Every carrier has noted the continued strength on its most recent earning carrier. Strong demand explains the increase in new destinations or frequencies, particularly European, that the carriers have scheduled for the coming summer.
United’s destinations announcement in October was the most striking. The carrier’s summer 2025 schedule includes service to eight new cities: Ulaanbaatar, Mongolia; Kaohsiung, Taiwan; Nuuk, Greenland; Palermo, Italy; Bilbao, Spain; Madeira Island, Portugal; Faro, Portugal and Dakar, Senegal.
On United’s October earnings call, CEO Scott Kirby noted, “And at the end of the day, Greenland has got a lot of attention, but it is only two 737s per week. So its impact on our system will be small. But its impact on United, our brand and our customer profile and sign-up for Miles will be great.”
- Credit Card Deals
Thirdly, airlines are increasingly tapping a lucrative revenue source: credit card deals. The leading deal is Delta’s, which produced third quarter American Express revenue of $1.8 billion, up 6% from the same quarter a year earlier. Delta has targeted $10 billion in future annual remuneration.
A key for American came on Dec. 5, when the carrier announced that Citi would become its exclusive credit card issuer. That arrangement ended negotiations that lasted for several years, largely because Barclays also had an American credit card deal and had to be bought out. The Barclays deal had been with US Airways, which merged with American in 2013.
On Dec. 3rd, American shares closed at $14.47. On Dec.5, they closed at 17.38, up 20%. Immediately after the deal was announced, Cowen analyst Tom Fitzgerald upped his EPS estimate and his price target, to $17 from $10, although he maintained a hold rating. Fitzgerald wrote, “We update our model with latest guidance as well as the finalized 10-year credit card deal with Citi commencing in 2026. Mgmt anticipates remuneration growing at 10%” compound annual growth rate. He also estimated that American’s likely credit card remuneration would near $10 billion annually in 2030.
- Passengers Seek Premium
The fourth widely noted trend has been for passengers to buy up to “premium” seating. It may be said that airlines now treat legroom, drinks, seat selection, bag transport and food, things that were once free, as premium products.
Still, recent Senate hearings, where airlines were blasted for charging more for better seats, seem ridiculous. Notably, Sen Richard Blumental, D.-Conn., declared, “Our investigation found that in 2023 alone, American, Delta, United, Frontier and Spirit collected more than $3 billion in seat fees — only seat fees. That's not airfare, that's just fees for booking a specific seat in advance, or selecting a slightly better seat.”
The Mets, Yankees and every other sports team in the country charge more for better seats and no one complains about that.
Despite their strong finish, airline stocks were laggards until summer.
In August, when airline shares were lagging, market strategist Stephanie Link, chief investment strategist and portfolio manager at Hightower Advisors, said recession fears were unreasonable, suggested that airline share prices were overly impacted by such fears and declared United to be her favorite airline stock. These turned out to be good calls.
Link was interviewed for a Forbes story “United Airlines Challenges Delta For Industry Lead As American Lags,” and posted Aug. 6. She declared, “We’re not in a recession,” countering the day’s trading logic. “GDP is going to grow 2.5% this year.” (The Conference Board now estimates 2.7%.)
At the time, Delta shares were down 6% year-to-date, United shares were down 7% and American was down 31%. Delta was trading around $38; it closed the year above $60. United shares were trading at around $39. They closed out the year near $97. American, trading at around $9, closed the year close to $18.
Link generally endorsed airline shares and picked United as her favorite. “United was the star this past quarter,” she said. “United got it right in terms of capacity pricing and keeping costs low.
“United and Delta seem to be forward thinking, and they have skated to where the puck is going,” she said, adding, “Delta had its run. I tend to like stocks that are a little more contrarian. The popular long is Delta; United has more of a mixed view.” The term “long” refers to stocks that are bought with the intention to hold them for a long time.
