Airline stocks can be lucrative investments during thriving economies when more people take vacations and businesses expand. These can also deliver strong returns when oil costs plummet. But airline stocks are often volatile and can lose altitude in economic downturns.
Today, the global airline industry continues to struggle through the turbulence of the COVID-19 pandemic. But with Canadians becoming keen to travel again, could we see a rise in airline stocks? And if so, what are the best airline stocks to invest in?
Airline stocks are the stocks of companies that provide air transportation for passengers and cargo using a variety of aircraft including airplanes and helicopters. Airlines are part of the Industrial sector and the Transportation sub-sector. On the passenger side, a few large corporations dominate the global market. But you can also find smaller, domestic companies that provide discount flights and operate under lower costs.
Investing in the Industrial sector
There are several ways your airline stock investing can take flight. You can purchase shares of individual airline stocks or buy shares in an ETF which invests in a basket of stocks.
Here’s how to buy airline stocks:
How to buy stocks in a company
If you’re interested in hopping aboard airline stocks, here are some examples to consider before taking flight.
If you’re interested in diversifying your portfolio with airline stocks, consider an exchange traded fund (ETF). These are baskets of stocks that come from various companies, sectors and geographies. Many offer exposure to airline stocks, but only one is primarily made up of airline stocks and other companies associated with aviation including aircraft manufacturers, airline operators and airports.
During times of economic prosperity, airline stocks can offer strong returns. People have more disposable income to travel and take vacations. Business operations can also extend to new areas and even new countries. All this can involve airline travel.
In fact, the decade prior to 2020 saw airline stocks flying high. Before the outbreak of COVID-19, the projected growth of revenue ton-miles (RTM) for international flights led by US commercial air carriers was about 4% per year from 2020 to 2040.
But lockdowns and travel restrictions following the COVID-19 outbreak all but grounded the rise of airline industry profits and passenger capacity.
Investing in airline stocks today can be risky business, especially for day traders, as the industry continues weathering the storm of COVID-19. The International Air Transport Association (IATA) expects the airline industry to lose more than USD $250 billion by 2020’s end. And it doesn’t expect airlines to see pre-pandemic passenger levels until 2023. The association notes that even in 2025, passenger traffic will stand 10% below what it had envisioned for that year before the pandemic.
At the height of the coronavirus crisis in April 2020, passenger volume had dropped by 96%, a low not seen since the 1950s. For the week beginning November 30, 2020, the global industry’s number of scheduled flights was down by 45.8% compared to the week of December 2, 2019.
For active investors, the state of the airline industry may look gloomy. But long-term investors may be able to buy these stocks at discount prices and see profits when the industry recovers.
The airline industry has flown out of harm’s way before, but it took time. According to A4A, it took America’s airlines 3 years to recover from 9/11 and more than seven years to recover from the global financial crisis of 2008.
But as news of a coronavirus vaccine develops, passengers may feel safer to return to the skies. The IATA noted the airline industry has made it through the hardest part of the pandemic and is on its way to recovery. with air transport revenue expected to reach USD $476 billion in fiscal year 2021 from USD $340 billion in the current year.
To invest, you’ll need a brokerage account. Explore your options below.
Airline stocks can soar during strong economies and when oil prices drop. Prior to 2020, the global airline industry was seeing success. But the COVID-19 pandemic, which has rocked the global economy, delivered a particularly damaging blow to the airline sector.
Still, the industry may have weathered the harshest storms as it makes its way toward recovery. This can take years, however. So carefully analyze airline stocks and make sure they can align with your investment goals and risk tolerance. And don’t forget to compare brokerage platforms.
When will airline stocks recover?
Nobody knows when the airline industry may recover, if at all. But industry groups suspect cruise lines to start picking up in 2022 and seeing some major progress by 2025.
Can I invest in airline stock mutual funds?
Yes, you can invest in baskets of airline stocks. A mutual fund example would be the Fidelity Select Air Transportation Portfolio (NASDAQ: FSAIX).
What’s the biggest airline?
In 2019, American Airlines carried the most passengers in North America with more than 215 million passengers.
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