Airline Stocks: A Promising 2025 Ahead?
The airline industry has experienced a remarkable resurgence in 2024, with premier carriers United Airlines and Delta Air Lines seeing their shares soar by 145% and 55%, respectively. As we enter 2025, investors are wondering if this upward trend will continue. With United trading at 8.1 times earnings estimates and Delta at 8.4 times, it’s essential to examine the factors driving their stock performance.
Unpacking the Stock Price Charts
A closer look at the share price charts of United and Delta reveals an interesting pattern. While they tracked each other until the summer, United outperformed from then onward. Two key reasons contributed to this divergence. Firstly, United was less affected by the CrowdStrike software update issue, which caused significant flight disruptions in the summer. Secondly, United benefited more from the industry’s decision to remove unprofitable capacity, a move acknowledged by United CEO Scott Kirby.
Industry Dynamics: A Shift Towards Discipline
The airline industry’s rational decision to remove unprofitable capacity has led to a more favorable operating environment. Both United and Delta management have confirmed that excess capacity was taken out of the market during the summer. This discipline has resulted in United’s stock outperforming, as it had more upside exposure to the industry. If this trend continues, investors may see a reduction in the frequency and drama of the industry’s boom-and-bust cycles.
Valuation: Is the Stock Cheap?
Wall Street analyst consensus estimates suggest that United’s stock is undervalued, with a P/E ratio of 8.1. However, investor concerns about meeting these expectations remain. The table below highlights the estimated P/E ratios for major airlines:
| Airline | P/E 2024 (est) | EPS Growth in 2025 (est) | P/E 2025 (est) |
| — | — | — | — |
| United Airlines | 9.6 | 20.4% | 8.1 |
| Delta Air Lines | 10.3 | 22.6% | 8.4 |
| American Airlines | 10.4 | 36.9% | 7.6 |
Three Factors Pointing to a Strong 2025
Several indicators suggest that United Airlines is poised for an excellent 2025. Firstly, management expects the higher-margin corporate traveler to return, with corporate growth accelerating in the first quarter. Secondly, revenue per available seat mile (RASM) and cost per available seat mile excluding fuel (CASM-ex) are moving in the right direction. Finally, the industry dynamics of more disciplined behavior and financial pressures on low-cost carriers will improve the pricing and competitive environment for United Airlines.
A Promising Outlook for United Airlines
Everything points to United having another strong operational year in 2025, which will likely be reflected in its share price performance. If the economy remains stable and consumer spending is supported by growing corporate spending, then United Airlines is well-positioned to have another great year.
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