Industry Overview - The overall air travel demand in the United States remains strong despite some tariff-related challenges, supported by declining oil prices and easing geopolitical tensions [1][2] - The airline industry has experienced a price increase of over 34% in the past three months, outperforming the S&P 500 Index [3] Upcoming Travel Trends - The Transportation Security Administration (TSA) projects over 18.5 million passengers will be screened during the July 4 holiday weekend, with July 6 expected to be the busiest day [7][9] - U.S. airlines will operate 4% more flights compared to the previous year, translating to approximately 27,000 daily scheduled flights [7][9] Airline Stock Highlights - SkyWest (SKYW) has seen a stock gain of 32% over the past three months, with earnings surpassing estimates by an average of 17.1% in the last four quarters [11] - Delta Air Lines (DAL) has experienced a 34% stock increase in the last three months, with a recent 25% hike in quarterly dividend payouts [12][13] - Allegiant Travel Company (ALGT) is benefiting from strong air travel demand and aims to expand its fleet to 122 by the end of 2025, with an average earnings beat of 32.7% in the last four quarters [13][14]

Industry Overview - The Zacks Airline industry is involved in transporting passengers and cargo globally, with operators maintaining a fleet of mainline jets and regional planes [3] - The industry includes both legacy carriers and low-cost airlines, and its performance is closely tied to the overall economy [3] - Air travel demand has improved significantly from pandemic lows, indicating a recovery trend [3] Current Market Conditions - The gradual de-escalation of the Israel-Iran conflict has led to a decline in oil prices, positively impacting airline fuel costs [1][9] - The average jet fuel cost is projected to decrease to $86 per barrel in 2025 from $99 per barrel in 2024, contributing to a lower total fuel bill of $236 billion in 2025 compared to $261 billion in 2024 [8] - Despite low fuel costs, airlines are facing increased labor costs due to a post-COVID-19 labor shortage, which is affecting their bottom-line growth [10] Financial Performance and Projections - The International Air Transport Association (IATA) forecasts total airline revenues to reach $979 billion in 2025, with passenger revenues expected to hit $693 billion, marking a 1.6% increase from 2024 [4] - A record 4.99 billion passengers are anticipated to travel globally in 2025, representing a 4% increase from 2024 [4] - The Zacks Airline industry has outperformed the S&P 500, returning 22.7% over the past year compared to the S&P 500's 9.6% rise [14] Shareholder Returns - Airlines are increasingly returning cash to shareholders through dividends and buybacks, reflecting financial strength and confidence [5] - Delta Air Lines has approved a 25% dividend hike, raising its quarterly cash dividend to $0.75 from $0.60, to be paid on August 21, 2025 [6][7] Investment Opportunities - LATAM Airlines is experiencing strong air travel demand, with a 3.6% increase in passengers in Q1 2025 compared to the same period in 2024, and a 28.8% upward revision in earnings estimates [22] - Copa Holdings is benefiting from regional economic expansion and has consistently beaten earnings estimates, with upward revisions of 6.3% and 4.5% for current and next-year earnings, respectively [26][27] - SkyWest has gained 7.5% over the past three months, with a 3.5% upward revision in earnings estimates for 2025 [31]

Core Viewpoint - The analysis compares United Airlines (UAL) and Copa Holdings (CPA), highlighting UAL's struggles due to domestic demand slowdown and CPA's growth driven by increased air travel demand post-pandemic. Given the current market conditions, CPA appears to be the more favorable investment option [18][19]. United Airlines (UAL) - UAL is experiencing a tariff-induced slowdown in domestic air travel demand, with soft domestic travel in Q1 2025, while international revenues remain strong, particularly in long-haul travel, with Atlantic unit revenues up 4.7% and Pacific revenues up 8.5% year-over-year [3]. - UAL has provided earnings per share (EPS) guidance for 2025, expecting adjusted EPS between $11.50 and $13.50 in a stable market, and between $7 and $9 in a recessionary environment [4]. - To address weak demand, UAL plans to reduce scheduled domestic capacity by 4 points starting Q3 2025. Labor costs increased by 12.8% in 2024, and delivery delays of Boeing 737 MAX jets have impacted fleet plans [5]. - UAL expects to receive multiple Boeing 737 MAX jets in 2025, with total capital expenditures projected to be less than $6.5 billion [6]. - A decline in fuel costs and a $1.5 billion share buyback plan announced in October 2024 are positive developments for UAL, which has repurchased shares worth $451 million through April 10 [7]. - UAL has consistently beaten earnings estimates, with an average beat of 10.3% over the past four quarters [8]. - The Zacks Consensus Estimate for UAL's 2025 sales indicates a 3% year-over-year increase, while EPS is expected to drop by 5.9% [15]. Copa Holdings (CPA) - CPA is benefiting from improved air travel demand post-pandemic, with a projected capacity growth of 7-8% year-over-year for 2025 and an expected operating margin of 21-23% [9]. - The liquidity position of CPA is strong, ending Q1 2025 with cash and cash equivalents of $916.3 million, significantly higher than its current debt of $232.4 million [10]. - CPA has also consistently beaten earnings estimates, with an average beat of 5.5% over the past four quarters [11]. - The Zacks Consensus Estimate for CPA's 2025 sales implies a 4.5% year-over-year increase, with EPS expected to rise by 14.3% [17]. - CPA's stock performance has outpaced UAL, gaining in double digits year-to-date, while UAL's stock has declined significantly due to domestic demand issues [12]. Conclusion - The analysis concludes that UAL is facing significant challenges due to market uncertainty and a slowdown in domestic air travel, while CPA is positioned for growth due to favorable market conditions and strategic initiatives. Therefore, CPA is considered a better investment choice compared to UAL at this time [18].