Can the Airline Stocks Take Off on the Upside?

The iconic investor Warren Buffett has had a challenging past with airline stocks. In a 2007 letter to Berkshire Hathaway investors, he wrote, “If a far-sighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down,” referring to the Wright brothers, who, together with Wilbur, invented, built, and flew the world’s first successful airplane.

In 2020, Buffett dumped airline stocks as COVID-19 caused a 90% plunge in passengers. In 2024, he called airline stocks “hazardous to your investment health.”

Meanwhile, airline stocks have been moving higher over the past years and could have more upside potential in early 2025.

The reasons for rising airline share prices

• Travel activity has picked up as the impact of the 2020 global pandemic fades.
• Many workers are returning to offices, causing increasing business travel.
• Airlines have refined pricing, with additional charging for seats, luggage, and other services growing earnings. 

The leading U.S. airlines did well in 2024

• Delta Air Lines shares (DAL) rose 50.4%, moving from $40.23 to $60.50 per share in 2024.
• United Airlines Holdings Inc. shares (UAL) rose 135.3%, moving from $41.26 to $97.10 per share in 2024
• American Airlines shares (AAL) moved 26.9% higher from $13.74 at the end of 2023 to $17.43 per share on December 31, 2024.
• In early February 2024, AAL shares were slightly lower than the 2024 closing level, while DAL and UAL were higher.

ETFs that track the airlines

• The JETS ETF has over 30% exposure to UAL, AAL, and DAL shares. It also invests in many smaller U.S. airline stocks that could be takeover candidates and has over $1 billion in assets under management.

Source: Barchart

The monthly ten-year chart highlights the bullish pattern in the JETS ETF since the 2020 pandemic-inspired low. JETS is approaching the March 2021 $28.98 high, a critical technical resistance level.

• The CRUZ ETF, with over $32 million in assets, invests in hotel, airline, and cruise stocks.
• XTN is the SPDR Transportation ETF with around $220 million in assets.
• IYT is the iShares Transportation ETF with over $700 million in assets. 

The case for higher airline stock prices in 2025

• Airlines are bullish on travel demand in 2025. According to the International Air Transport Association, a record 5.2 billion people are forecast to fly in 2025, a 6.7% year-on-year increase.
• Fewer regulations under the Trump administration could bolster airline earnings over the coming months and years.
• Increased M&A activity could create economies of scale in the capital-intensive airline sector.

The risks for the airline industry

• Turmoil on the geopolitical landscape could derail travel demand.
• The 2020 global pandemic was an example of the dangers of travel-related investments.
• As Warren Buffett expressed in his 2007 shareholder letter, airline stocks have been highly volatile.

The odds favor higher airline stocks in early 2025 as fewer regulations, increased M&A activity that promotes accretive mergers and economies of scale, and forecasts of rising travel demand favor the leading U.S. airlines. With the stock market near record highs, identifying growth sectors is challenging. Airlines could be a sleeping sector that soars over the coming months and years.