U.S. Could See Record Labor Day Travel: Buy These Airline Stocks

This Labor Day weekend is likely to see high air travel, fueled by affordable ticket prices. A strong economy and low jobless rate are also encouraging Americans to book trips for the last big travel weekend this summer.

With this combination, investors should consider airline companies positioned to grow on the back of this near-term surge in travel demand.

Airlines Expecting Record-High Travel

According to Airlines for America (A4A), U.S. airlines are expected to see 16.1 million passengers take to the skies, marking a 5% increase in air traveler count over last year. John Heimlich, chief economist at A4A, which represents most of the large carriers, said that “we believe this period to be an all-time high, and we expect the year to be an all-time high.” U.S. airlines carried a record-breaking 823 million passengers last year, as per the U.S. Department of Transportation’s Bureau of Transportation Statistics.

Around 110,000 passengers a day will be traveling by air starting August 30 through September 5, according to the group. Domestic travel is expected to drive most of the increase, while the best time to travel on any day during the weekend is between 4 p.m. and 10 p.m., as per AirHelp. Some of the busiest airports are expected to be Hartsfield-Jackson Atlanta International Airport, Chicago O’Hare International Airport, Dallas/Fort Worth International Airport, Denver International Airport and Los Angeles International Airport (also read: Airline Hubs: Which Carrier Diminates Your Airport?).

But, which will be the busiest days for the airlines? Airports are expected to be jam-packed on September 1, followed by Aug 31 and Sep 4. Nevertheless, Labor Day wasn't the only busy time for airlines this season. A4A had projected a record-breaking 234 million passengers this summer, reflecting a 4% increase from a year ago.

Meanwhile, airlines are adding 130,000 seats a day through either larger planes or more flights as per A4A. Heimlich said that “while we expect a growth in passenger traffic over the Labor Day holiday, flyers can rest assured that U.S. airlines have appropriately increased the number of seats available for their late summer getaways.”

What’s Behind the Busy Summer?

Low ticket prices and substantial growth in both large and small airlines are making air travel more affordable and easier for consumers. Ticket prices, including ancillary fees, averaged $366.92 in 2016, down from $399.11 in 2014.

A strong economy and low unemployment rate are boosting the travel numbers as well. The U.S. GDP expanded 3% in the second quarter, the fastest in more than two years. An uptick in consumer outlays and business investment helped the economy gain traction, while increased spending on goods and services pushed consumer expenditure up 3.3% in the said quarter. Consumer spending – the biggest driver of the economy – was boosted by the strongest labor market in years and low inflation.

The United States added more than 16.6 million jobs since 2010, pushing the unemployment rate down to 4.3% in July, the lowest since March 2001. In fact, the U.S. job market roared back to life in July, with a better-than-expected 209,000 job additions. Employment gains have more or less averaged 180,000 per month this year, and several economists believe that the economy might need to add only 100,000 jobs on a regular basis to maintain growth levels. Separately, consumer prices grew a meagre 0.1% in July from a year earlier, way below the Fed’s 2% target.

4 Airline Stocks to Buy Right Away

As travel volume is expected to increase, the airline industry is poised to benefit substantially. We have, thus, selected four airline stocks that boast a Zacks Rank #1 (Strong Buy) or #2 (Buy).

SkyWest, Inc. (NASDAQ:SKYW) , through its subsidiaries SkyWest Airlines, Inc. (SkyWest Airlines) and ExpressJet Airlines, Inc. (ExpressJet), operates regional airlines in the United States. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings rose 1.9% over the last 60 days. The company has gained 1.2% and 27.1% in the last three months and one year, respectively.

Azul SA (NYSE:AZUL) is a Brazil-based company engaged in the provision of passenger transportation services. But, its air network comprises international routes to the Unites States as well. Azul has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings climbed 16.4% over the last 30 days. The company has gained 13.4% and 16.3% in the last three months and one-year period, respectively.

Deutsche Lufthansa (DE:LHAG) AG (OTC:DLAKY) operates as an aviation company in Germany and internationally, including the United States. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings rose 10.4% over the last 30 days. The company has gained 29% and 116.6% in the last three months and one-year period, respectively. You can see the complete list of today’s Zacks #1 Rank stocks here.

Air France KLM SA (OTC:AFLYY) is an airline company. The company is engaged in passenger transportation. Its activities also include cargo, aeronautics maintenance and other air-transport-related activities, including catering. Air France operates airlines internationally, including the United States. The carrier has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings increased 8.1% over the last 30 days. The company has gained 34.5% and 180.8% in the last three months and one-year period, respectively.

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