In this article, we will take a look at the 12 best airline stocks to buy according to hedge funds.
Airline stocks went into a free fall recently after the collapse of Silicon Valley Bank and the subsequent jitters in the banking sector that pushed possibility of recession hitting the global economy in 2023 further close to reality. However, a shortage of airplanes and pilots, a rapid increase in consumer spending on travel and entertainment are amongst the biggest growth catalysts for the airline industry. Analysts believe the industry is not facing any short-term risks, and even if recession hits and consumers start to delay their travel plans, some airline stocks are offering attractive long-term buying opportunity.
Despite recession fears and overall turmoil in the broader financial markets, airlines continue to rake in huge profits from an increasing travel demand that is defying analyst expectations. Executives from major airline companies recently presented at JPMorgan Chase & Co. industrial conference. Overall the mood among the airline companies was positive as they expect fares to continue their upward trajectory amid an increasing demand. Executives from three major airlines – American Airlines Group Inc. (NASDAQ:AAL), United Airlines Holdings Inc. (NYSE:UAL), and Delta Air Lines, Inc. (NYSE:DLA) – had a consensus opinion that the demand in the industry is going nowhere but upwards. According to a Bloomberg report, United’s Chief Commercial Officer Andrew Nocella said he expects the “prices are only going higher and the prices are already very high.”
Airline companies in Europe are equally optimistic. Recently, Deutsche Lufthansa said it expects to report “significant improvement” on the €1.5 billion adjusted earnings before interest and taxes result it reported for 2022. Air France-KLM and British Airways parent IAG SA also recently said that they are expecting to reach pre-pandemic levels in 2023.
Airlines in the US and Europe are enjoying rising air fares in the midst of rising travel demand for spring and summer bookings. According to a CNBC report, travel app Hopper said domestic airfare was average at around $264 for a round trip for March and April in the US, a 20% rise from the previous year. Most importantly, this average airfare was 5% above the pre-pandemic levels.
Photo by Toa heftiba on Unsplash
American Airlines in its January earnings call said the following which shows the optimism in the industry based on solid demand:
… Demand remains strong and our revenue performance is in line with our expectations following our strong holiday performance.
Post-holiday bookings are off to a strong start. In fact, this is our best ever post-holiday booking period with broad strength across all entities and travel periods. Demand for domestic and short-haul international travel continues to lead the way. We expect a strong demand environment to continue in 2023 and anticipate further improvement in demand for long-haul international travel this year. Now turning to the operation. The American Airlines team delivered a fantastic performance in the fourth quarter. We operated more than 475,000 flights in the quarter with an average load factor of approximately 84%, and we ranked first in completion factor among the nine largest U.S. carriers. Our team delivered an even stronger performance over the holidays, despite challenging conditions in many parts of the country.
Our Methodology
For this article, we scanned Insider Monkey’s database of 943 hedge funds tracked as of the end of the fourth quarter of 2022 and picked 12 airline stocks with the highest number of hedge funds. This list of the best airline stocks to buy according to hedge funds is ranked in ascending order of the number of hedge fund investors.
Best Airline Stocks To Buy According to Hedge Funds
12. Allegiant Travel Company (NASDAQ:ALGT)
Number of Hedge Fund Holders: 18
Allegiant Travel Company (NASDAQ:ALGT) is a low-cost airline. At the end of the fourth quarter of 2022, 18 hedge funds reported owning stakes in Allegiant Travel Company (NASDAQ:ALGT). The net worth of these stakes was $77 million.
Recently, Allegiant Travel Company (NASDAQ:ALGT) posted preliminary traffic data for February. Revenue passenger miles jumped 12.2% on a YoY basis to reach 1.18 million. Passenger traffic in scheduled services grew 13% year over year to 1.24 million.
Diamond Hill Capital made the following comment about Allegiant Travel Company (NASDAQ:ALGT) in its Q4 2022 investor letter:
“Other bottom contributors included Allegiant Travel Company (NASDAQ:ALGT), Concrete Pumping Holdings and WNS Holdings. Lowcost airline Allegiant Travel faces a challenging industry backdrop, including higher fuel costs and ongoing concerns about the potential for a recession.”
11. Hawaiian Holdings, Inc. (NASDAQ:HA)
Number of Hedge Fund Holders: 19
Hawaiian Holdings, Inc. (NASDAQ:HA) is behind Hawaiian Airlines, Inc., which provides services on North America routes between the State of Hawaii and Long Beach, Los Angeles, Oakland, Sacramento, San Diego and other important states and cities.
In January, Hawaiian Holdings, Inc. (NASDAQ:HA) posted its Q4 results. Adjusted EPS in the period came in at -$0.49, beating estimates by $0.21. Revenue in the period increased by 3.2% to $731.04 million, missing estimates by $2.02 million.
As of the end of the fourth quarter of 2022, 19 hedge funds had stakes in Hawaiian Holdings, Inc. (NASDAQ:HA).
10. Air Transport Services Group, Inc. (NASDAQ:ATSG)
Number of Hedge Fund Holders: 20
Ohio-based Air Transport Services Group, Inc. (NASDAQ:ATSG) provides air cargo, transportation and related services to domestic and foreign air carriers. While it’s not a pure-play airline stock, it’s an important player in the industry with decent hedge fund sentiment. Insider Monkey’s database shows 20 hedge funds had stakes in Air Transport Services Group, Inc. (NASDAQ:ATSG) as of the end of the fourth quarter of 2022. The total value of these hedge funds’ stakes was $77 million.
In January, Truist analyst Michael Ciarmoli increased his price target on Air Transport Services Group, Inc. (NASDAQ:ATSG) to $29 from $28 and kept a Hold rating on the stock.
9. Ryanair Holdings plc (NASDAQ:RYAAY)
Number of Hedge Fund Holders: 21
Ireland-based low-cost airliner Ryanair Holdings plc (NASDAQ:RYAAY) is also among the best airline stocks to buy according to hedge funds. Insider Monkey’s database of 943 hedge funds shows that 21 funds had stakes in Ryanair Holdings plc (NASDAQ:RYAAY) as of the end of the fourth quarter of 2022. The total value of these stakes was $426 million. The biggest stakeholder of Ryanair Holdings plc (NASDAQ:RYAAY) among these hedge funds was Natixis Global Asset Management’s Harris Associates which had an $814 million stake in Ryanair Holdings plc (NASDAQ:RYAAY).
Recently, Erste Group upgraded Ryanair Holdings plc (NASDAQ:RYAAY) to Buy from Hold. The firm highlighted that Ryanair Holdings plc (NASDAQ:RYAAY)’s revenue increased by about 170% on a YoY basis to €4.8 billion in fiscal 2022 due to strong post-COVID demand growth and higher fares.
8. Alaska Air Group, Inc. (NYSE:ALK)
Number of Hedge Fund Holders: 22
Alaska Air Group, Inc. (NYSE:ALK) owns Alaska Airlines and Horizon Air. Alaska Air Group, Inc. (NYSE:ALK) ranks 8th in our list of the best airline stocks to buy according to hedge funds.
Recently, Barclays gave bullish comments on Alaska Air Group, Inc. (NYSE:ALK) and called it a safer stock pick in the airline sector due to its strong balance sheet and operational performance. Barclays preferred Alaska Air Group, Inc. (NYSE:ALK) over major names like Southwest.
Barclays said Alaska Air Group, Inc. (NYSE:ALK) has a low net balance sheet leverage and is currently generating the “highest operating profitability of the major airlines since 2022.”
Barclays upgraded Alaska Air Group, Inc. (NYSE:ALK) stock to Overweight from Equal Weight and assigned a $62 price target to the stock, up from $54.
Insider Monkey’s database shows that 22 hedge funds tracked by Insider Monkey had stakes in Alaska Air Group, Inc. (NYSE:ALK) as of the end of the fourth quarter of 2022. The total worth of these hedge funds’ stakes was $304 million. The biggest stakeholder of Alaska Air Group, Inc. (NYSE:ALK) was Paul Reeder and Edward Shapiro’s PAR Capital Management which had a $64.4 million stake in the company.
7. JetBlue Airways Corporation (NASDAQ:JBLU)
Number of Hedge Fund Holders: 23
While JetBlue Airways Corporation (NASDAQ:JBLU) and Spirit are expected to strongly contest the concerns voiced by the Department of Justice over their merger plans, the stock remains a top choice of hedge fund investors due to secular growth trends. Recently, JetBlue Airways Corporation (NASDAQ:JBLU) shares rose after the company gave a strong revenue guidance for the first quarter of 2023.
JetBlue Airways Corporation (NASDAQ:JBLU) expects its available seat miles to increase 8% to 9% as compared to 2022, up from its previous guidance of 5.5% and 8.5%. Revenue in the period is expected to increase 32% to 35%, better than the prior growth guidance of 28% to 32%.
Out of the 943 hedge funds in Insider Monkey’s database, 23 hedge funds had stakes in JetBlue Airways Corporation (NASDAQ:JBLU). The total value of these hedge funds’ stakes was $135 million. The biggest stakeholder of JetBlue Airways Corporation (NASDAQ:JBLU) during this period was John Overdeck and David Siegel’s Two Sigma Advisors which had a $20.4 million stake in the company.
6. Spirit Airlines, Inc. (NASDAQ:SAVE)
Number of Hedge Fund Holders: 23
Spirit Airlines, Inc. (NASDAQ:SAVE) is under pressure currently after the Department of Justice sued to block the company’s merger with JetBlue, citing competition concerns.
Recently, TD Cowen decreased Spirit Airlines, Inc. (NASDAQ:SAVE)’s price target to $20 from $30 and kept a Market Perform rating on the shares.
Nonetheless, Spirit Airlines, Inc. (NASDAQ:SAVE) was one of the most popular airline stocks among the elite hedge funds tracked by Insider Monkey. As of the end of the fourth quarter of 2022, 23 hedge funds had stakes in Spirit Airlines, Inc. (NASDAQ:SAVE). The total value of these stakes was $295 million. The biggest stakeholder of Spirit Airlines, Inc. (NASDAQ:SAVE) was Himanshu Gulati’s Antara Capital which owns an $83 million stake in the company.
5. Copa Holdings, S.A. (NYSE:CPA)
Number of Hedge Fund Holders: 26
Copa Holdings, S.A. (NYSE:CPA) is the parent of Panamanian carrier Copa Airlines. Recently, Copa Holdings, S.A. (NYSE:CPA) posted traffic data for February. Seat miles in the period increased by 2.6% in the month when compared to February 2019. The number of miles flown by revenue passengers increased 5.4% when compared to February 2019 to 1.72 billion.
In January, JPMorgan’s analyst Guilherme gave positive comments about Copa Holdings, S.A. (NYSE:CPA). The analyst said Copa Holdings, S.A. (NYSE:CPA) has a comfortable balance sheet situation. The analyst also said that Copa Holdings, S.A. (NYSE:CPA)’s immediate liquidity over short-term payables is the best among the LatAm group.
At the end of the last quarter of 2022, 26 hedge funds tracked by Insider Monkey had stakes in Copa Holdings, S.A. (NYSE:CPA). The most notable hedge fund stakeholders of Copa Holdings, S.A. (NYSE:CPA) during this period are Ken Griffin’s Citadel Investment Group ($75.2 million stake), Paul Marshall and Ian Wace’s Marshall Wace LLP ($53.4 million stake) and Anand Parekh’s Alyeska Investment Group ($47 million stake).
4. American Airlines Group Inc. (NASDAQ:AAL)
Number of Hedge Fund Holders: 31
American Airlines Group Inc. (NASDAQ:AAL) is one of the most popular airline stocks among the elite hedge funds in Insider Monkey’s database of 943 hedge funds. 31 hedge funds reported owning stakes in American Airlines Group Inc. (NASDAQ:AAL) at the end of the December quarter. The total worth of these hedge funds’ stakes was $563 million. The biggest hedge fund stakeholder of American Airlines Group Inc. (NASDAQ:AAL) was John Overdeck and David Siegel’s Two Sigma Advisors which had a $136 million stake in the company.
Recently, S&P Global Ratings upped its outlook for American Airlines Group Inc. (NASDAQ:AAL) to Positive from Stable and boosted certain issue ratings.
S&P Global Ratings expects American Airlines Group Inc. (NASDAQ:AAL) to continue to improve its earnings and cash flow in 2023 on the back of strong passenger demand and industry capacity constraints that support higher fares.
The ratings agency believes American Airlines Group Inc. (NASDAQ:AAL) is well positioned to generate strong credit measures even as it faces debt maturities.
3. United Airlines Holdings Inc (NASDAQ:UAL)
Number of Hedge Fund Holders: 35
A total of 35 hedge fund in Insider Monkey’s database had stakes in UAL as of the end of the fourth quarter of 2022. The biggest stakeholder of the company is GLG Partners of Noam Gottesman with a $58 million stake.
Here is what the company management said during its latest earnings call:
The United is the largest carrier to be flattish versus 2019, which provides for an easy setup and positive RASM year-over-year. International demand remains incredibly strong, and we are looking at the potential for record profits and margins across our global network. Asia has traditionally been a margin drag on our global flying, but we’ve worked diligently to rebuild the network and close this gap. And we think 2023 will validate that we accomplish that goal. Asia is also close to being fully opened, allowing United to reestablish the bulk of the specific flying outside of China. It’s worth noting that restrictions on the use of Russian airspace will constrain United from flying both of our China network in 2023. This same restriction will also limit our ability to fly to India.
2. Delta Air Lines, Inc. (NYSE:DLA)
Number of Hedge Fund Holders: 51
Delta Air Lines, Inc. (NYSE:DLA) ranks 2nd in our list of the best airline stocks to buy according to hedge funds. Recently, Evercore ISI upgraded Delta Air Lines, Inc. (NYSE:DLA) to Outperform rating from in-Line. The investment firm said in a note to investors that Delta Air Lines, Inc. (NYSE:DLA)’s stock has lagged legacy peers like United Airlines and American Airlines in 2023.
Evercore ISI also increased its 2023 EPS estimate for Delta Air Lines, Inc. (NYSE:DLA) by 17%.
Delta Air Lines, Inc. (NYSE:DLA) recently reiterated its Q1 guidance. Delta Air Lines, Inc. (NYSE:DLA) expects revenue growth of 14% to 17% for the quarter when compared to 2019.
EPS in the period is expected to come between $0.15 to $0.40 versus the consensus estimate of $0.33.
1. Southwest Airlines Co. (NYSE:LUV)
Number of Hedge Fund Holders: 51
Southwest Airlines Co. (NYSE:LUV) ranks 1st in our list of the best airline stocks to buy according to hedge funds.
Recently, Southwest Airlines Co. (NYSE:LUV) shared its guidance data for the first quarter of 2023 and the full year. Southwest Airlines Co. (NYSE:LUV) expects its operating revenue in the first quarter to increase by 21% to 23%. This was less than the previous growth guidance of 20% to 24%.
For the full-year 2023, Southwest Airlines Co. (NYSE:LUV) expects its capital spending to be about $4 billion, down from the earlier estimate of $ billion to $4.5 billion.
At the end of the last quarter of 2022, 51 hedge funds tracked by Insider Monkey had stakes in Southwest Airlines Co. (NYSE:LUV). The total worth of these hedge funds’ stakes was $998 million. The biggest stakeholder of Southwest Airlines Co. (NYSE:LUV) was Paul Reeder and Edward Shapiro’s PAR Capital Management with a $67 million stake in the company.
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Disclosure: None. 12 Best Airline Stocks To Buy According to Hedge Funds is originally published on Insider Monkey.
