3 Airline Stocks to Buy for Thanksgiving

The U.S. aviation industry is poised to fly high during the busiest U.S. travel period. An anticipated rise in air traffic during the Thanksgiving holiday season is expected to boost the profit outlook of airline companies. Airline companies have already gained positive momentum from a slump in oil prices and upbeat earnings reports. Let's see what may keep these companies performing well going forward.

The airline industry expects about 24.6 million passengers to take to the sky over the 12-day Thanksgiving holiday period that stretches from Nov 21 to Dec 2. Industry's leading trade group Airlines for America (‘A4A') said the number is up 1.5% from an estimated 24.2 million in 2013. On an average, additional 31,000 travelers are expected to fly each day, compared to same period last year. The following chart indicates the number of passengers expected to fly each day during the holiday season.

The busiest day for the holiday period and for the year is expected to be Sunday, Nov 30. About 2.61 million passengers are expected to fly on that day. The lightest travel days are expected to be Black Friday and Thanksgiving Day when the numbers are expected to come down to 1.63 million and 1.36 million, respectively.

The number of travelers expected to fly during the Thanksgiving holiday period is also significantly higher than the last holiday period this year: the airline industry had expected to see about 14 million passengers over Labor Day. Moreover, percentage of filled seats known as load factor touched 84.1% for both domestic and international flights in the first eight months of 2014, more than 83.7% in the same period last year.

Profitability of airline companies primarily depends on fuel prices. About 30% of an airline's operating costs are dependent on fuel costs. This means a 10% decrease in fuel prices will result in a 3% decline in operating expenses. According to Bureau of Transportation Statistics, fuel prices dropped during the 12-month period ending in September. During this period carriers paid an average of $2.97 a gallon, less than $3.07 the prior year. This has saved the aviation industry $1.6 billion.

Fuel prices further fell in October and November on signs of a slowdown in China's Industrial Production growth, strengthening of the dollar and U.S. oil production level hitting the highest level since 1980s. Further, OPEC-member Saudi Arabia's decision to cut its supply price to U.S. customers in the face of abundant North American output dragged the oil prices down.

The International Energy Agency (IEA) said oil prices may drop further in 2015 due to these “deep structural changes” affecting the industry, despite oil prices touching its lowest level this year since 2010. The Goldman Sachs Group, Inc.

also slashed its target price for the West Texas Intermediate

crude oil to $75 per barrel from $90 per barrel for first-quarter 2015. Currently, WTI crude oil and Brent crude oil prices remain at $75.58 and $79.33 a barrel, respectively.

Ebola-related scares to the aviation industry are diminishing. This is evident from the fact that the deadly disease failed to hurt U.S. airlines bookings this holiday season, and most major airlines posted strong quarterly results in October. The World Health Organization (WHO) also confirmed that chances of transmission of the virus during air travel are very low.

WHO believes business travelers will hardly come across direct contact with blood, secretions or organs of Ebola-infected persons or animals. Further, a “fusion cell” of government and airline industry security analysts is formed in order to address the Ebola crisis, according to Office of the Director of National Intelligence (ODNI).

Nine major carriers -- Alaska Air Group, Inc.

, Allegiant Travel Company

, American Airlines Group Inc.

, Delta Air Lines Inc.

, Hawaiian Holdings Inc.

, JetBlue Airways Corporation

, Southwest Airlines Co.

, Spirit Airlines, Inc.

and United Continental Holdings, Inc. (

) -- earned roughly $6.8 billion in the first nine months of 2014, more than $4.5 billion profit earned during the same period last year. As a result, the airlines are running net profit margins of 5.7%, a level last seen in 2009. Operating revenues also jumped 5.5% that more than offset the 3.1% increase in operating expenses.

The aviation industry's broad profitability is on pace to be the highest this year since 1999. However, this isn't translating into cheaper fares as carriers are reinvesting back into their businesses in order to improve their financial health, enrich the customer experience and weather the next recession. Nonetheless, this rise in airfares failed to have a negative impact on travel bookings this holiday season.

operates passenger airlines that provide scheduled air transportation services in the United States. The company reported third-quarter 2014 earnings of 55 cents per share, beating the Zacks Consensus Estimate of 52 cents. The result was also higher than the prior-year quarter earnings of 34 cents.

Current year expected earnings growth rate for this Zacks Rank #1 (Strong Buy) stock is 71.8%, way above the industry growth rate of 15.9%. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 20.4.

is engaged in the scheduled air transportation of passengers and cargo services on North America routes. The company reported better-than-expected third quarter results as adjusted earnings per share came in at 79 cents, beating the Zacks Consensus Estimate by 5 cents. It was a 14% increase over the same quarter last year.

Hawaiian Holdings carries a Zacks Rank #1 (Strong Buy) and has expected earnings growth of 72.4%. It has a P/E (F1) of 12.2x.

provides low-fare airline services in the United States, Caribbean and Latin America. The company posted third-quarter 2014 earnings of $1.01 per share, surpassing the Zacks Consensus Estimate of 96 cents.

Apart from a Zacks Rank #1 (Strong Buy), the company has expected earnings growth of 33.1%. It has a P/E (F1) of 23.4x.

Moreover, all the three stocks have a Zacks Industry Rank in the top 13%.

These stocks with strong fundamentals and growth prospects are positioned to gain in the near future. While it is expected that most of the stocks in the airline space will gain, those with a favorable Zacks Rank may ensure outperformance.

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