To buy or not to buy the airline stocks in 2025? This is a good question because, at the time of writing, shares in premier airlines United Airlines (UAL -1.21%) and Delta Air Lines (DAL -1.83%) were up by 145% and 55% in 2024. Such remarkable performances are seldom repeated the next year, yet United trades on 8.1 times earnings estimates for 2025, and Delta on 8.4 times. Let’s take a closer look at United and what investors might expect from the airline in 2025.
Why United Airlines outperformed in 2024
The share price charts of United and Delta might surprise investors, notably as they tracked each other until the Summer, only for United to notably outperform from then onward. Understanding the reasons why helps throw some light on the current operational momentum behind the stock.
There are two reasons why. First, United was relatively less impacted than Delta by the Crowdstrike software update issue that caused significant flight disruptions in the Summer. Second, and arguably much more important from a long-term perspective, United benefitted more from the airline industry acting rationally and removing unprofitable capacity in the Summer.
It’s a point acknowledged by CEO Scott Kirby on the last earnings call when he noted that “United's domestic capacity in 2024 was shaped with the expectation that the industry would remove unprofitable capacity in earnest in Q4.” Kirby went on to explain that this conscious decision meant United “expanded slower than most during the first 3 quarters of the year when capacity dynamics were less favorable.” Still, industry conditions are now favorable as both United and Delta management have confirmed that excess capacity was taken out of the market.
Image source: Getty Images.
As such, United’s stock outperformed as it had more upside exposure to the airline industry acting in a more disciplined manner.
If this behavior continues, then investors have reason to believe the cycles of periodic boom and bust in the airline industry might not be as frequent or as dramatic as in the past.
A structural shift in 2025
Building on the last point, it’s fair to say that airline stocks are priced as if a bust could come around the corner. The table below uses the Wall Street analyst consensus estimates, and they are saying the stock is cheap. However, what the estimates don’t tell you is how concerned investors are that United and the others might not meet these expectations.
|
Airline |
P/E 2024 (Est) |
EPS Growth in 2025 (Est) |
P/E 2025 (Est) |
|---|---|---|---|
|
United Airlines |
9.6 times |
20.4% |
8.1 times |
|
Delta Air Lines |
10.3 times |
22.6% |
8.4 times |
|
American Airlines |
10.4 times |
36.9% |
7.6 times |
Data source: Wall Street estimates. Author’s analysis.
That said, three factors point to United having an excellent 2025 and confirm Kirby’s assertion that United has excellent momentum going into the year.
First, management sees the higher-margin corporate traveler returning, and United’s Chief Commercial Officer Andrew Nocella sees corporate growth accelerating in the first quarter. Similarly, 85% of respondents to Delta corporate survey said they expect increased spending on travel in 2025.
Second, the two most widely followed airline industry metrics, revenue per available seat mile (RASM) and cost per available seat mile excluding fuel (CASM-ex), are moving in the right direction. While total RASM was down 1.6% in the third quarter year over year, management outlined that it passed an inflection point in the quarter. The improving momentum in the third quarter is likely to build into the fourth quarter of 2024 and the pricing environment is improving. Meanwhile, United’s CASM-ex is expected to “o decline into the fourth quarter and to decline further into 2025,” according to CFO Michael Leskinen.
Image source: Getty Images.
Finally, the industry dynamics of more disciplined behavior (discussed above) and the financial and competitive pressures on low-cost carriers (United has been particularly successful in its basic economy offering) like Spirit Airlines mean the pricing and competitive environment are improving for United Airlines.
A stock to buy for 2025
Everything points to United having another strong operational year in 2025, which will likely be reflected in its share price performance, too. If the economy behaves and consumer spending is supported by growing corporate spending, then United Airlines is positioned to have another great year.
