Airlines Stocks Do Not Have Much Upside Now

Over the last two years, I have recommended buying eight stocks from the aviation industry. Out of those eight stocks, seven have resulted in a double-digit or triple-digit profit. The only stock that underperformed was Spirit Airlines (SAVE). However, as I have recommended investors to average down their position in Spirit Airlines several times, the stock is down only about 5% on average.

It seems like airline stocks have run their course for now. Although ticket prices are increasing, Mr. Market is obsessed with the falling PRASM, or passenger revenue per average seat mile, which has been falling due to high-speed capacity growth.

Despite the fact that airlines are still enjoying the benefits of cheaper crude, investors are worried about overcapacity in the market.
Capacity outpacing demand has led to the bankruptcy of many airlines in the past, which is why investors are more skeptical about the growth of airlines.

I recently recommended investors to book profits by selling many airline stocks that have witnessed great run up over the last two years. I even turned bearish on two of my favorite airline stocks, JetBlue (JBLU) and Volaris (VLRS).

Apart from these two stocks, I also think investors should stay away from Virgin America (VA) as the carrier operates in one of the most competitive markets and is facing pricing pressure. In addition, I also think investors should sell Hawaiian Holdings (HA), a stock that I recommended almost two years ago at $14. Hawaiian Airlines is now trading at over $45, however with insiders dumping the stock at a rapid pace and increasing competition, I think investors should look to book profits here.

The only stock which I think investors should continue holding is Spirit Airlines. All the bad news is currently baked in Spirit’s share price and with oil prices inching higher, Spirit is gaining back its competitive edge. The carrier struggled in 2015 due to pricing competition from American Airlines, however with oil prices moving higher, American Airlines will no longer be able to compete against Spirit on price.


Airlines are growing capacity at a rapid pace which in turn has led to declining unit revenue. Given investors’ stance, airline stocks will not move higher in a weak unit revenue environment. For this reason, I think investors should stay away from the aviation sector. However, I still like Spirit Airlines and  think the stock can offer about 10% upside.
Published on Mar 15, 2016
By Ayush Singh

Copyrighted 2020. Content published with author's permission.

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