Can Airlines Stocks Keep Leading The Travel Rally In 2025?

Commercial air travel has been the talk of the town, but investors should keep an eye on the skies as airlines continue to soar. While United Airlines Holdings (UAL) and other major carriers have been making headlines with their massive plane orders and improved passenger experiences, the real story lies in the sustained growth and outperformance of airline stocks. As travel demand reaches record highs and capacity growth remains limited, airlines are well-positioned to continue their impressive run in 2025.



The travel itch has been strong in 2024, with Americans flying in unprecedented numbers. The top 10 travel days in the Transportation Security Administration's history have all occurred this year, according to the US Department of Transportation. This surge in demand has pushed airline stocks to a soaring annual outperformance, with the S&P Supercomposite Airlines Index jumping 60% in 2024, compared to a 27% gain for the S&P 500 Index. It's the best year for the industry gauge since 2014, which is also the last time it beat the broader market by this amount.

United Airlines, the airline gauge's top performer, is up 144% this year, making it the fourth-biggest gainer in the S&P 500. Other major carriers, such as Delta Air Lines (DAL) and Alaska Air Group (ALK), have also seen significant gains, with Delta up 75% and Alaska Air up 110% year-to-date.



Investors see airline stocks as trading cheaply, with many carriers offering premium travel offerings and international exposure. Legacy carriers like United and Delta, as well as low-cost carriers like Frontier Group Holdings (ULCC), are well-positioned to capitalize on the strong travel demand and limited capacity growth.

Barclays analysts led by Brandon Oglenski see airline fundamentals considerably improving into 2025, supporting a strong margin and earnings outlook for many carriers in the sector. The rosier outlook has already started showing up in financial updates, with JetBlue Airways (JBLU), Southwest Airlines (LUV), and American Airlines (AAL) all boosting their earnings forecasts for the year.

However, there are still challenges ahead for airlines in 2025. Geopolitical risks and regulatory changes could impact international operations and growth prospects. Additionally, technological advancements, such as electric and hybrid aircraft, may lead to higher upfront costs for airlines as they invest in new technologies to meet the demand for sustainable travel options.

Despite these challenges, the strong demand for leisure travel, particularly in emerging markets, is expected to continue driving airline stocks in 2025. With a limited growth in capacity and a favorable regulatory environment, airlines are well-positioned to capture a larger share of the market and increase revenue growth.

In conclusion, airline stocks have been leading the travel rally in 2024, and there's no sign of them slowing down in 2025. As long as travel demand remains strong and capacity growth is limited, airlines will continue to benefit from higher airfares and improved profitability. While there are challenges ahead, the strong fundamentals and growth prospects of the sector make it an attractive investment opportunity for the coming year.