Shares of major U.S. airlines have soared in recent months as Wall Street becomes increasingly optimistic about higher revenues from route expansions and growing demand for premium travel.
Delta ( DAL ) and United ( UAL ) stocks hit record highs as the broader market rose in the days following Donald Trump’s victory in the White House.
Year to date, Delta and United have gained nearly 60% and 134%, respectively, easily outpacing the S&P 500’s (^GSPC) gain of more than 25%. American (AAL) is up about 6% over the same period, while it is up more than 50% since August.
Even shares of JetBlue ( JBLU ) and Frontier ( ULCC ) are positive this year, despite failed consolidation attempts among the low-cost carriers.
Aviation industry watchers are seeing a strong year-end close for Delta, United and American, despite ongoing industry challenges such as higher maintenance costs, higher pilot wages signed into contracts last year and new fleet restrictions due to production issues at Boeing (BA).
“These challenges show Wall Street and the smart people that these companies are well managed,” said Mike Boyd, president of aviation research and consulting firm Boyd Group International.
Air travel is expected to reach a record high this Thanksgiving holiday.
As of Tuesday, the Transportation Security Administration expects it will screen 18.3 million people in the coming week, up 6%
“I think we’re going to have a really strong end to the year for American, United, Delta – even Southwest … they’ve turned the corner,” Boyd said.
Part of the reason for the major airlines’ success has to do with increased demand for premium travel, which includes benefits like extra legroom, refundable tickets and early boarding. Analysts expect the higher margins from such offerings will boost profits, which in turn could send shares soaring.
The growing trend of charging more for perks such as advanced seating, window seats and extra legroom and bags has drawn criticism from a U.S. Senate panel led by Democratic Sen. Richard Blumenthal. The lawmaker announced a hearing next Wednesday with airline executives to discuss what he calls “skyrocketing junk costs” in the lawmaker’s latest report.
Delta expects premium ticket revenue to exceed main cabin sales by 2027. Delta announced plans on Investment Day last week to expand its offering to wealthy travelers. The company expects that 85% of seats added in 2025 will be premium.
“That premium consumer is doing well,” Delta CEO Ed Bastian said last Wednesday, pointing to millennials as the fastest-growing cohort in the travel spending category.
Revenue growth from additional premium seats could help the airline meet or exceed its pre-pandemic average operating margin of 14%.
“The demand and interest in being at the front and sitting in the seats with the different ways they can get there and pay for it is like never before,” Bastian added.
A traveler walks with a suitcase past a Delta Air Lines gate at Detroit Metropolitan Wayne County Airport in Romulus, Michigan, Friday, Oct. 5, 2024. (AP Photo/Carolyn Kaster) ·ASSOCIATED PRESS
American Airlines has said premium revenue rose 8% year over year in the third quarter. The company plans to grow the number of seats at the upper levels by approximately 20% over the next two years until 2026.
“As we look into the future, I think customers are looking for a more premium experience, we’re going to meet the fact that they want more control,” U.S. CEO Robert Isom told analysts during the company’s earnings call last month company. .
Travelers are flocking to more expensive seats for convenience and reliability, says Sebastian Domaradzki, aviation consultant at M&N Aviation.
“You get pre-boarding and you get access to the lounge. The convenience of being able to change your light bulb at the last minute for free… that is very important for the business traveler and the wealthy traveler,” Domaradzki told Yahoo Finance.
Polaris open suites with reclining beds, United’s premium business class product. United Airlines Boeing 787 Dreamliner aircraft interior on April 20, 2024 (Nicolas Economou/NurPhoto via Getty Images) ·NurPhoto via Getty Images
Domaradzki also sees major airlines benefiting from low-cost carrier Spirit’s recent Chapter 11 filing after efforts to join JetBlue or Frontier failed to materialize.
“People want to know they can get where they need to go without having to worry about the airline’s financial performance and whether their ticket will still be valid in a few weeks,” Domaradzki said.
Low-cost airlines have been hit hard in the past year as travelers have opted for more international travel, and fierce domestic competition has made it difficult to raise prices to offset rising maintenance costs and salaries.
Larger airlines such as United have increased their market share through more domestic routes.
Last week, TD Cowen’s Tom Fitzgerald selected United as the Best Idea of 2025, based on its “domestic market share gains, increasing business traffic and maturing international routes.”
The analyst raised his price target for the stock from $100 to $125.
“The outlook for the broader industry has improved significantly since mid-year due to substantial declines in domestic capacity and fuel prices, as well as macroeconomic demand that looks set to remain resilient into 2025,” he wrote.
A Delta Air Lines plane leaves the gate, Friday, July 19, 2024, at Logan International Airport in Boston. (AP Photo/Michael Dwyer, file) ·ASSOCIATED PRESS
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X @ines_ferre.
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