U.S. Airline Stocks Set for Growth in 2025

Investing.com reports that U.S. airline stocks are poised for significant growth in 2025 due to various favorable factors such as robust demand, disciplined capacity growth, and advantageous fuel prices, all contributing to improved profitability in the sector.

Morgan Stanley (NYSE:MS) predicts margin expansion, with revenue per available seat mile (RASM) exceeding costs per available seat mile (CASM) – a situation that has been hard to achieve since the pandemic.

According to a Morgan Stanley analyst, "2025 looks set to be what 2024 should have been for U.S. Airlines – a perfect storm of tailwinds that essentially propels the industry to make money." Expectations include a sustained recovery in international and corporate travel alongside strong premium demand.

The report highlights that Morgan Stanley has initiated coverage on Southwest Airlines Company (NYSE:LUV), rating it as "overweight" with a target price of $42. They also upgraded United Airlines Holdings Inc (NASDAQ:UAL) to a target price of $130; however, the airline's impressive performance in 2024—with shares rising over 150%—sets a high hurdle for continued growth.

The airline industry managed to navigate challenges in 2024, which included capacity constraints and supply-chain problems. Morgan Stanley credits a disciplined approach in supply management during the latter half of the year for resulting in record-high stock valuations.

The importance of maintaining this discipline in 2025 is emphasized, with projections suggesting capacity growth will align more with pre-pandemic trends rather than the sharp recovery pattern seen previously.

Despite the optimism, the report highlights that airlines may encounter increased scrutiny as valuations rise. Persistent capacity constraints, stemming from tight aircraft delivery schedules, pilot shortages, and limited maintenance capabilities, are anticipated to remain, preventing oversupply in the near term.

Additionally, premiumisation is expected to continue driving structural growth for legacy carriers, providing them with "annuity-like" revenue streams through loyalty programs and ancillary services.