Time to Buy Airline Stocks for a Rebound, or is it Too Soon?

With many airline stocks trading at enticingly low forward P/E valuations, their rebound prospects have become increasingly attractive following a broader industry-wide correction.

However, several major U.S. airlines have cut or softened their earnings forecasts due to rising fuel costs, geopolitical disruptions, and uneven travel demand.

These pressures have contributed to weaker sector performance and investor caution, although there are a few noteworthy airline stocks that are starting to make the argument for being in oversold territory.

Why Airlines Are Cutting Earnings Forecasts

1. Jet Fuel Prices Have Spiked Sharply

Fuel is one of the largest airline expenses, and recent geopolitical conflicts in the Middle East have driven oil prices dramatically higher. Optimistically, crude oil prices dropped toward $80 a barrel on Tuesday after previously spiking above $100.  

Still, jet fuel prices have surged over 70% in Asia and more than 140% in Europe, driven by Iran’s closure of the Strait of Hormuz and broader supply-chain threats.

Higher fuel costs directly reduce profit margins, forcing airlines to revise earnings expectations downward.

2. Geopolitical Tensions Are Disrupting Flight Routes

Airspace closures have sprawled across the Middle East after Iran-related strikes grounded thousands of flights and disrupted global travel flows.

These disruptions increase operating costs (longer routes, cancellations) and reduce revenue.

3. Demand and Pricing Have Been Softer Than Expected

Along with rising costs, domestic airline stocks has underperformed the broader market this year due to weaker-than-hoped demand and pricing. 

Economic uncertainty has also played a part in dampening consumer travel spending.

4. Labor Issues and Pilot Shortages

Airlines continue to face elevated labor costs and pilot shortages, which pressure margins and complicate capacity planning.

Additionally, there has been a TSA personnel shortage recently, causing hours-long airport security lines across the U.S., including major hubs like Houston, New Orleans, and Atlanta.

The TSA shortage is directly tied to the ongoing partial Department of Homeland Security (DHS) shutdown, which has forced TSA officers to work without pay, leading to increased absences and reduced staffing.

Southwest is a Notable Airline Stock That Looks Oversold                                                        

Holding spots on the coveted Zacks Rank #1 (Strong Buy) list, three notable airline stocks are making the case for being oversold, including Allegiant Travel Company ALGT, Southwest Airlines LUV, and International Consolidated Airlines Group ICAGY, the holding company for British Airways and Iberia Airlines.

All three trade under 10X forward earnings and have fallen sharply over the last month, but are experiencing a stable or favorable trend of EPS revisions despite industry-wide cost pressures.

Southwest, for example, is less affected by international flight disruptions as a major regional carrier in the U.S. Trading at 9X forward earnings, FY26 and FY27 EPS estimates are actually up 6% and 4% for Southwest in the last 30 days, respectively.

Projected to bring in more than $30 billion in annual sales, Southwest’s annual earnings are now expected to spike to $4.38 per share this year compared to EPS of $0.93 in 2025. Furthermore, FY27 EPS is projected to leap another 18% to $5.17.

More compelling, the year-ago EPS estimates picture shows that Southwest’s FY26 and FY27 earnings estimate revisions have now spiked 57% and 33%, respectively.

Conclusion & Strategic Thoughts

Airline stocks may start to present some of the most intriguing buy-the-dip opportunities for investors who are willing to be patient and expand their risk tolerance. The airline industry is highly cyclical and sensitive to economic shifts, yet it can deliver strong returns when operating conditions turn favorable.

Keeping this in mind, major carriers like American AAL, Delta DAL, and United UAL have all cut their earnings forecast but remain attractive for long-term investors with a Zacks Rank #3 (Hold).  

Although there could still be better buying opportunities ahead, several indicators suggest the pullback in the major airline stocks is starting to offer a compelling entry point as well, considering travel demand as a whole was still strong heading into 2026, and they're also trading at discounted valuations. This setup favors patient buyers looking for cyclical recovery potential.

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

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