3 Airline Stocks to Keep an Eye on Despite Industry Headwinds

Stocks in the Zacks Transportation - Airline industry have been badly hit by the longest federal government shutdown in U.S. history, which finally ended last month. The 43-day shutdown resulted in multiple flights being cancelled, with airline operations being crippled due to staffing shortages and bad weather. High labor costs are also hurting bottom-line growth.

Despite these headwinds, the industry has shown resilience, particularly among companies focusing on growth strategies and operational efficiency. Notable players expected to withstand these challenges include Delta Air Lines DAL, LATAM Airlines LTM and SkyWest SKYW.
 

About the Industry

The Zacks Airline industry players are engaged in transporting passengers and cargo to various destinations globally. Most operators maintain a fleet of multiple mainline jets in addition to several regional planes. Their operations are aided by their regional airline subsidiaries and third-party regional carriers. Also, industry players utilize their respective cargo divisions to offer a wide range of freight and mail services. The players invest substantially to upgrade technology. The industry, apart from comprising legacy carriers, includes low-cost players. The well-being of companies in this group is linked to the health of the overall economy. The aviation space was one of the worst pandemic-hit corners, with passenger revenues taking a beating. However, air travel demand has improved from the pandemic lows. The focus on boosting cargo revenues is a positive, too.

Factors Relevant to the Industry's Fortunes

Prolonged Government Shutdown: A Bane: The longest ever federal government shutdown in U.S. history ended last month, after President Donald Trump signed a spending bill. The 43-day shutdown caused financial stress for federal workers who went without paychecks, stranded scores of travelers at airports, among other difficulties. The airline industry was among the worst-affected ones, with multiple flights being canceled, coupled with staffing shortages and adverse weather conditions. The extended government shutdown left air traffic controllers unpaid and placed substantial strain on air traffic control operations. At the Morgan Stanley Global Consumer & Retail Conference held earlier this month, Delta unveiled that the government shutdown is anticipated to reduce the company’s December-quarter pre-tax profitability by almost $200 million, or about 25 cents per share.

Upbeat Thanksgiving Travel: Despite disruptions caused by the 43-day government shutdown and unfavorable weather, passenger volumes peaked during the Thanksgiving holiday period. According to a Reuters report, the U.S. Transportation Security Administration screened a single-day record 3.13 million passengers on Nov. 30, the Sunday after Thanksgiving.  Bookings for Christmas have also been indicating a healthy trend. This upbeat holiday travel bodes well for airlines.

Uptick in Labor Costs: The increase in expenses on the labor front represents a challenge for airlines. For example, at Delta, salaries and related costs have increased 7% year over year in the first nine months of 2025. With U.S. airlines grappling with labor shortages in the post-COVID-19 high-demand scenario, the bargaining power of various labor groups has naturally increased. As a result, we have seen pay-hike deals being inked in the space. This is resulting in a spike in labor costs, limiting bottom-line growth in turn.  

Zacks Industry Rank Signals Dull Prospects

The Zacks Airline industry is a 23-stock group within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #150, which places it in the bottom 38% of 243 Zacks industries.

The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates murky near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are becoming pessimistic about this group’s earnings growth potential. While the industry’s earnings estimates for 2025 have gone down 21.6% in the past year, the same for 2026 have fallen 8.3% over the same timeframe.

Despite the dim near-term prospects of the industry, we will present a few stocks that you may want to consider or retain in your portfolio. But it’s worth taking a look at the industry’s stock-market performance and valuation picture first.

Industry Surpasses Sector but Lags the S&P500

Over the past year, the Zacks Transportation - Airline industry has gained 8.2% against the S&P 500 composite’s rise of 14.6%. The broader sector has declined 6.8% in the said time frame.

One-Year Price Performance

 

Valuation Picture

The price/sales (P/S) ratio is often used to value airline stocks. The industry currently has a forward 12-month P/S of 0.54X compared with the S&P 500’s 5.3X. It is also below the sector’s forward-12-month P/S of 1.31X.

Over the past five years, the industry has traded as high as 1.09X, as low as 0.31X and at the median of 0.47X.

Forward 12-Month Price-to-Sales Ratio (Past Five Years)

 

3 Airline Stocks to Monitor Now

LATAM Airlines is benefiting from its lean cost structure, expanding operations and strategic partnerships. Improvement in air travel demand following the end of the pandemic and normalization of economic activities bodes well for LATAM's top line.

LTM has an impressive earnings surprise history. The company's earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average surprise of 29.8%. LATAM currently carries a Zacks Rank #2 (Buy).

  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here  

 Price and Consensus: LTM

 

SkyWest is based in St. George, UT. The company operates as a regional airline in the United States through its subsidiary SkyWest Airlines. It offers high-quality regional service to airports located primarily in the Midwestern and Western United States, as well as Mexico and Canada.

Low fuel costs are aiding the bottom line. The stock has gained 3.6% over the past six months. Over the past 60 days, the Zacks Consensus Estimate for 2026 earnings has been revised 7.2% upward. SkyWest currently carries a Zacks Rank #2.

Price and Consensus: SKYW

Delta is based in Atlanta, GA. The carrier is being well-served by the improving air travel demand scenario and low fuel costs. Efforts to reward its shareholders also bode well. DAL’s liquidity position is also good.

Delta’s earnings surpassed estimates in each of the last four quarters. The average beat is 8.9%. The stock has gained 30% over the past six months. Delta currently carries a Zacks Rank #3 (Hold).

 

Price and Consensus: DAL

 

 

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Delta Air Lines, Inc. (DAL): Free Stock Analysis Report
 
SkyWest, Inc. (SKYW): Free Stock Analysis Report
 
LATAM Airlines Group S.A. (LTM): Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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