Assessing the Trajectory of LUV and DAL in 2024 Travel Trends

Despite macroeconomic challenges, the airline industry is poised for growth with robust travel demand. The industry is expected to witness significant revenue growth in the upcoming quarters driven by increased leisure and revived business travel. Considering these factors, I think it would be wise to add fundamentally strong airline stocks Southwest Airlines Co. (LUV – Get Rating) and Delta Air Lines, Inc. (DAL – Get Rating) to one’s watchlist.

Before diving deeper into their fundamentals, let’s discuss what’s happening in the airline industry.

The airline industry rebounded strongly from pandemic restrictions, fueled by pent-up demand for leisure travel. Investors’ interest in the sector is evident from the U.S. Global Jets ETF’s (JETS) 15.6% returns over the past month.

IATA reported that the passenger demand recovery persisted in October, with total global traffic reaching 98.2% of pre-COVID levels, marking a 31.2% year-over-year increase. International traffic climbed 29.7%, and international revenue passenger kilometers (RPKs) reached 94.4% of October 2019 levels.

There has been increased demand for hotels, airlines, and cruise lines in the past two years. With a surge in visitors and heightened U.S. travel spending, the U.S. Travel & Tourism sector is projected to contribute $2.2 trillion to GDP in 2023, supporting 17.4 million jobs, as per the WTTC’s 2023 global trends report, with expectations of surpassing these results in 2024.

Likewise, in 2024, IATA forecasts a slight improvement in the airline industry’s net profit to $25.7 billion (2.7% margin) from an expected $23.3 billion (2.6% margin) in 2023. Despite anticipated operating profits of $49.3 billion, global net profitability is projected to stay below the cost of capital, reflecting significant regional financial variations.

Considering these conducive trends, let’s analyze the fundamentals of the two watchlist additions from the Airlines industry, beginning with…

Continue reading at