By Callum Keown
It's been a turbulent year for U.S. airline stocks but the sector's resilience and a more favorable set up in the new year means there's reason to believe a smoother flight path lies ahead in 2026.
It was looking like a lost year for the airline industry for much of 2025 after President Donald Trump's trade policy hit sentiment and demand, sending the stocks tumbling in March and April. But a strong recovery, as airlines reported a swift return to demand following the government shutdown, has helped the sector back into positive territory.
The Global JETS exchange-traded fund, which tracks the performance of airlines, was up 11% in 2025. It underperformed the S&P 500 but jumped 62% from its lows in April.
That recovery in the face of a number of problems last year bodes well for this year.
"Between favorable comps from 2025, a presumably less chaotic policy backdrop, and monetary and fiscal stimulus beginning to flow through the economy, we view the sector as broadly under-owned heading into next year," TD Cowen analyst Tom Fitzgerald said in a December note.
United Airlines is the firm's top pick for 2026 -- it has a Buy rating and a price target of $125 on the stock, implying a 12% upside to Wednesday's closing price. United climbed 15% in 2025 and 99% from its 52-week low.
Favorable comparisons will be United's friend in each quarter, he noted -- the tariff-related slump in the first quarter, major disruption at Newark Liberty International Airport in the next two, and the government shutdown in the final quarter.
"We view United as a high quality growth story given the resilience it exhibited in 2025, the prudent growth enabled by its fleet plan, and its exposure to premium traffic and higher income cohorts," he added.
Delta Air Lines should also benefit from its similar exposure to premium and international travel, while American Airlines -- down 12% in 2025 -- may get a boost from dynamics that favor the large carriers.
"The U.S. airline industry is preparing for a new year that is projected to benefit from modest capacity increases, a healthy pricing backdrop, and solid U.S. GDP growth," Deutsche Bank analyst, Michael Linenberg, said.
He expects full-service carriers -- Delta, American, and United -- to outperform the low-cost airlines, such as JetBlue Airways and Southwest Airlines, given their higher margins.
"Delta and United should stand head and shoulders above their peers when final results are tallied for 2025," Linenberg said in his 2026 outlook. "We believe the combination of balance sheet improvement, significant free cash flow generation, and sizable order books will ensure that Delta and United at least maintain (or more likely widen) their financial lead vis-à-vis their competitors in 2026," he added.
Deutsche Bank has a Buy rating on Delta with a price target of $72.
The strong holiday travel period points toward a decent slate of fourth-quarter earnings reports in early January. The Sunday after Thanksgiving was the busiest day in U.S. aviation history as the Transportation Security Administration screened a record 3.13 million passengers at airports across the country.
Better-than-feared guidance updates relating to the 43-day government shutdown also paint a more positive picture heading into earnings season.
But it's the airline sector we're talking about and investors are never too far away from something going wrong -- just look at 2025. That being said, airlines have navigated the turbulence well and if they get clear skies ahead the stocks should have a good 2026.
Write to Callum Keown at callum.keown@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
January 01, 2026 00:30 ET (05:30 GMT)
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