Airline Stocks Outperform in October

According to Bank of America, airline stocks significantly outperformed the S&P 500 in October, achieving a strong 20.2% gain compared to the 8.1% rise in the index.

Positive Returns Across the Board

All airline companies, except Spirit Airlines (NYSE:SAVE) and JetBlue Airways (NASDAQ:JBLU), reported positive returns. Year-to-date, the airline group enjoys a 33.1% return, leading the S&P 500, which has seen a 19.6% increase.

Seasonal Trends Continue

The seasonal trend for airlines, typically strong from September to November, persisted into October, marking it as the second-strongest October for airlines relative to the S&P 500 since 2008. This follows a record-setting September.

Earnings Season Insights

Bank of America analysts Andrew G. Didora and Samuel Clough highlighted that the earnings season confirmed that lower capacity is driving yields, and the capacity outlook for early 2025 appears promising with a mere +1% increase in January and February schedules.

Looking ahead, analysts note that airline stocks have historically outperformed the market 63% of the time in November.

Valuation Trends

In terms of valuation, BofA indicates that most airline stocks are trading above the historical midpoint based on 2024E and 2025E EBITDAR metrics. Notably, Alaska Air (NYSE:ALK) is the lone airline trading below its historical midpoint for 2025E EBITDAR projections. Conversely, stocks for United Airlines and Delta Air Lines (NYSE:DAL), both rated as buys, have expanded their multiples recently. United Airlines trades -9.7% below the 75th percentile of its historical multiples, while Delta Air Lines trades 2.2% above the same benchmark.

The October performance for airline stocks was largely driven by revisions in multiples, as indicated by changes in valuations. Furthermore, upward adjustments in earnings estimates particularly favored domestic carriers, attributed to improving domestic pricing trends. Spirit Airlines and Southwest Airlines (NYSE:LUV) saw the most significant revisions in October, with estimates rising +119.2% and +21.5%, respectively.