Stock Market Crash Warning: Don’t Get Caught Holding These 3 Airline Stocks. 

Stocks to sell

The economy continues to give investors mixed signals. Inflation remains at higher-than-average levels — compared to the Federal Reserve’s preferred 2% target. But that hasn’t satiated the demand for airline travel. That doesn’t mean, however, that every airline is a good investment. Poor analyst sentiment suggests there are several airline stocks to avoid. 

The last round of earnings reports showed passenger unit revenues increasing for major airlines such as Alaska Airlines (NYSE:ALK), United Airlines (NASDAQ:UAL) and Delta Air Lines (NYSE:DAL). Each of these airlines is posting revenue and earnings that are, at the very least, on par with 2019 levels. Not surprisingly, these stocks are getting favorable sentiment from analysts. 

That’s not the case for the three airline stocks to sell in this article. Each may seem like a contrarian option, with air traffic being the tide that lifts all boats. But for a variety of reasons, these airlines are not converting higher consumer demand into profit. And with analyst sentiment souring, it’s time to keep these airlines grounded.

Southwest Airlines (LUV)

Source: Markus Mainka / Shutterstock.com

When air traffic began to recover in 2022, Southwest Airlines (NYSE:LUV) was a big winner. The company’s low-fare business model was just the ticket for travel-starved consumers.

However, the airline’s business model is facing significant turbulence due to rising labor costs and other inflation pressures. Southwest has also been affected by the problems enveloping Boeing (NYSE:BA). The 20 jets the airline expects to receive this year is far down from the 84 jets initially forecast.

That lack of additional capacity will make it difficult for the company to add to its revenue per available seat mile (RASM). Plus, as one analyst noted unlike an airline like Delta, Southwest doesn’t benefit from premium or international flights.

In its first-quarter earnings, Southwest missed on both the top and bottom lines. That is historically the airline’s weakest quarter. So, it’s important to note that revenue was higher year-over-year. But that makes the wider earnings loss more troubling.

Since the company’s earnings report, Jefferies (NYSE:JEF) downgraded LUV stock, now down 9% in 2024. Many other analysts have lowered their price targets below the consensus price target too.

Spirit Airlines (SAVE)

Source: Markus Mainka / Shutterstock.com

The last two stocks on this list of airline stocks to avoid are intertwined for what they hoped would be for better, but now may be for worse. Spirit Airlines (NYSE:SAVE) got a temporary lift from its proposed merger with JetBlue (NASDAQ:JBLU). JetBlue walked away from that merger in March 2024, and now investors are left to wonder if SAVE stock is still a viable investment. 

However, the company’s fourth-quarter earnings report from February should remove any false hope. Top-line revenue of $1.32 billion met expectations and was only slightly lower than the $1.39 billion reported in the prior year. 

But earnings are a different story. Spirit reported slightly better, though still negative, earnings per share. The company has now skidded off the runway of profitability, and an analyst from Citigroup (NYSE:C) is forecasting negative earnings to continue through 2025 as the company navigates negative cash flow and rising debt.

SAVE stock carries a consensus rating of Sell from the seven analysts who have offered a rating. And even though the consensus price target of $4.91 forecasts a large increase in the stock, it would still be in penny stock territory.

JetBlue (JBLU)

Source: Shutterstock

To understand why JetBlue is on this list of airline stocks to avoid, just look at Spirit. The two airlines wanted to team up to create a viable low-cost carrier that could compete with the larger carriers.

But now that the two companies mutually agreed to cancel the merger, JetBlue has no immediate answers as to how it will expand its fleet. Meanwhile, the airline’s revenue and earnings are both declining year-over-year.

That’s not likely to get better as long as inflation remains sticky. And that’s why analysts are lowering their price targets for JBLU stock after its quarterly earnings report in April. And if that wasn’t enough short interest in the stock is up 13.9% in the last month. That’s dragged JBLU stock down 24% and erased virtually all of the airline’s 2024 gains.

On the date of publication, Chris Markoch did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019.

Articles You May Like

Quantum Computing: The Key to Unlocking AI’s Full Potential?
Activist Ananym has a list of suggestions for Henry Schein. How the firm can help improve profits
Acurx Pharmaceuticals to add up to $1 million in bitcoin for treasury reserve, following MicroStrategy’s playbook
Dental supply stock rallies on theory RFK’s anti-fluoride stance will prompt more dentist visits
Autonomous Vehicles: Why 2025 Will Usher in the Self-Driving Car