We recently published a list of the 10 Best Airline Stocks to Buy For 2024. Since Southwest Airlines Co (NYSE:LUV) ranks 4th on the list, it deserves a deeper look.

Despite rising inflation, consumers worldwide continue to spend on travel and experiences, defying all expectations and forecasts. Latest data from the International Air Transport Association (IATA) estimates that the airline industry is expected to generate $30.5 billion in net income in 2024, driven by higher ticket prices and consumers’ desire to travel. Last year, the industry’s net income came in at $27.4 billion. According to data from the World Travel & Tourism Council (WTTC) the economic impact of the travel industry this year is expected to soar to $11.1 trillion, beating its previous level of $10 trillion recorded in 2019. The Council expects the tourism industry to become a $16 trillion industry over the next decade, accounting for about 11.4% of the global GDP.

However, not all is rosy in the airline industry. The competition in the industry is increasing, while geopolitical headwinds and rising employee costs continue to batter small and large airline companies. IATA was quick to highlight that despite the industry growth, airlines’ profit per passenger is just $6.14. Travel demand in China also remains subdued amid real estate and economic crisis in the country. However, analysts believe sooner or later the country would rebound and the best airline and travel companies would benefit from the influx of Chinese tourists.

A KPMG report on the airline industry highlighted the resilience of the airline industry and its fast recovery to pre-pandemics levels:

“The latest air travel data from IATA shows that passenger travel for November 2023 globally has reached 99.1% of November 2019 levels. November 2023 international RPKs reached 94.5% of November 2019 levels, while domestic traffic was 6.7% above the November 2019 level. Although international global travel remains 5.5% below pre-pandemic levels, IATA director general Willie Walsh said that the gap is “rapidly closing”, adding that current “economic headwinds are not deterring people from taking to the skies”. IATA also noted that long-term airline profitability shows that while the industry is exposed to external shocks, it typically returns to profitability “relatively quickly”.”

In this backdrop, we decided to take a look at some of the best airline stocks to buy in 2024 according to hedge funds. For that we first listed down all holdings of an airline ETF, which provides investors exposure to the airline industry and tracks some of the biggest and most important airlines and aviation companies of the US and worldwide. From these stocks we chose 10 companies with the highest number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Southwest Airlines Co (NYSE:LUV)

Number of Hedge Fund Investors: 33

With a dividend yield of 2.6%, Texas-based Southwest Airlines Co (NYSE:LUV) is one of the best airline stocks to buy in 2024 according to smart money investors. Of the 919 hedge funds tracked by Insider Monkey 33 hedge funds reported owning stakes in Southwest Airlines Co (NYSE:LUV). The biggest stake in Southwest Airlines Co (NYSE:LUV) is owned by Richard Oldfield’s Oldfield Partners which owns a $71 million stake in Southwest Airlines Co (NYSE:LUV). In April, Southwest Airlines Co (NYSE:LUV) shares fell after Southwest Airlines Co (NYSE:LUV) report a loss of $0.36 per share. Wall Street analysts were expecting Southwest Airlines Co (NYSE:LUV) to earn $0.02 per share. Revenue in the quarter jumped 10.3% year over year, missing estimates by $120 million. Like other major airlines, Southwest Airlines Co (NYSE:LUV) is bearing the brunt of the grounding of Boeing (BA) 737 MAX 9.

Southwest Airlines Co’s (NYSE:LUV) rising labor and maintenance costs in the first quarter worried investors as well as the Wall Street. Recently, Argus downgraded the stock to Hold, saying higher employee costs and delayed deliveries would cause Southwest Airlines Co (NYSE:LUV) to take longer than expected to make a turnaround. Jefferies also downgraded the stock to Hold in April, citing near-term pressures. Jefferies analyst Sheila Kahyaoglu said Southwest Airlines Co’s (NYSE:LUV) low-cost operating model is challenged by higher employee costs and other inflationary pressures. One-year average analyst price estimate for Southwest Airlines Co (NYSE:LUV) is $28, while the stock’s current price is hovering around $27. This shows that based on Wall Street analyst price targets, there isn’t much upside left to the stock in the near term.

Overall, Southwest Airlines Co (NYSE:LUV) ranks 4th on Insider Monkey’s list of 10 Best Airline Stocks to Buy For 2024. You can visit 10 Best Airline Stocks to Buy For 2024 to see other stocks in the list. While we acknowledge the potential of Southwest Airlines Co (NYSE:LUV), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than Southwest Airlines Co (NYSE:LUV) but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.