By Jack Hough
I'm not a technical analyst, but the chart on Delta Air Lines is exhibiting a not-plummeting pattern that seems unusual for the industry. Shares were recently down only 3% for the year, which puts them a couple of points ahead of the S&P 500. This, despite a 62% jump in the price of jet fuel since February, and a general slashing of airline profit estimates.
There has been other unsettling news for U.S. air travel. A deadly Air Canada runway crash in New York has drawn attention to a rising number of close calls. And a partial government shutdown has left airports short on passenger screeners, creating hourslong waits. Yet Delta has still returned 114% over the past three years, or 45 points more than the market. United Airlines Holdings has done even better, although it's down more this year, 17%.
It has been 122 years since humans first achieved sustained flight over the sand dunes of North Carolina. Might we now be achieving sustained stock gains for the U.S. airline industry? Unlikely -- American Airlines Group and JetBlue Airways are keeping things ugly. But at the risk of head-in-the-clouds optimism, the strongest operators are looking borderline investible. Let's run through some signs, and look at opportunities in aircraft manufacturers and suppliers, too.
U.S. airlines have largely stopped hedging fuel -- it added too much complexity and cost, and backfired when prices fell. The exception, sort of, is Delta. In 2012, it bought an oil refinery outside of Philadelphia. That doesn't insulate it from oil price spikes, but it helps when the difference in price for crude oil and jet fuel is wide, like now. Just look at how big, publicly traded refiners are doing: Phillips 66 stock is up 43% this year, and Marathon Petroleum and Valero Energy are up 53% apiece.
The 2026 earnings consensus for Delta has come down since the end of February, but only by 7%, to a recent $6.69 a share. That puts the stock at 10 times earnings, and long-term estimates call for a return to growth, with earnings topping $9 a share in two years. United's earnings consensus for this year is down only a little more: 9%. What's helping, ironically, is the industry truce on hedging.
"You don't have anyone cheating," says Tom Fitzgerald, an airline analyst at TD Cowen. "In the past, someone might have had a really advantageous hedging profile that would allow them to undercut the industry on pricing and take share. Now we have everybody facing the same cost curve, so they're all incentivized to push through fair increases."
Demand has been excellent, as those long airport lines suggest. At a mid-March conference, Delta mentioned a 25% jump year-over-year in sales the prior week. United cited double-digit percentage gains in RASM, or revenue per available seat mile. American called out 10% growth, and JetBlue said that strength had accelerated. Barclays this past week expressed caution over a recent decline in Google travel searches. But for now, bookings remain strong.
Back to earnings. Estimates for American Airlines have plunged by 37%, and the stock, unsurprisingly, is down 30% this year. Here's where the difference between the strong and the rest shows. Delta is the industry leader in business travel, and United, in international. Both clean up on premium seating and other upsells. American relies more on price-sensitive domestic and leisure travelers, and has more debt than rivals. That keeps profit margins low and volatility high. If you believe the war in Iran will wrap up quickly, you might like American stock for the bounceback, but long-termers will want to stick with the others.
JetBlue stock is down only 1% for the year, which makes sense only using Wall Street's so-bad-it's-good logic. It's even more leisure- and value-focused than American, with much less scale, and it has burned cash every year since 2019. But that leads to frequent merger speculation, including recently. JetBlue has a meager stock market value and a prized presence at capacity-constrained airports. In early March, Barclays estimated that its JFK slots alone were worth nearly 30% of its enterprise value, or market value adjusted for debt and cash.
Fitzgerald at TD likes United and Delta stock, in that order, plus Alaska Air Group, which is moving upscale and more international following its 2024 merger with Hawaiian Airlines and its wide-body aircraft and trans-Pacific routes. He also likes Southwest Airlines, whose recent move to match peers on fees has annoyed some fans but is padding profits at an opportune time. A tough stretch for the industry could pay off for strong operators by shaking out low-margin routes and shackling discounters, says Fitzgerald.
Strong flight demand bodes well for the wide-body duopoly, Boeing and Airbus. Deliveries are likely to grow by 10% this year, and by 13% and 12% the following two years, with shortages extending into the 2030s, according to Vertical Research Partners, which is bullish on both companies.
Kristine Liwag, an aerospace analyst at Morgan Stanley, calls a recent pullback in shares of aftermarket component suppliers an opportunity. Two factors keep business up during downturns for these companies. Much of the work is mandatory -- critical parts must be replaced after so many hours. "If the check engine light is on, it must go to the shop or you cannot keep flying it," says Liwag. Also, capacity in some cases is limited. Airlines that cancel slots at engine garages, for example, must wait a year or more for new ones.
Liwag's picks include GE Aerospace, the engine maker hatched from the old General Electric; Howmet Aerospace, which came from aluminum maker Alcoa and does precision casting and forging; FTAI Aviation, which services a widely used engine called the CFM 56; and TransDigm Group, which is the sole source for humble but high-margin components that passengers see and touch. TransDigm is the reason all airline seat belt buckles feel pretty much the same. It also does a tidy business in toilets -- a fitting reminder to airborne investors of its ability to hold steady through industry turbulence.
Write to Jack Hough at jack.hough@barrons.com. Follow him on X and subscribe to his Barron's Streetwise podcast.
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(END) Dow Jones Newswires
March 27, 2026 15:25 ET (19:25 GMT)
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