With Demand for Travel Soaring, Are Airlines Ready for a Comeback?

Many families are now starting to plan March Break getaways or overseas summer vacations, and this flurry of activity may make airlines seem like cash machines. Factor in high ticket prices and numerous luggage fees and you might expect to see these companies’ bottom lines soar.

But while passenger volume is growing – it was expected to be up by 10 per cent year-over-year in 2024 and 104 per cent from pre-pandemic levels, according to data from Airports Council International¹ – many airlines’ stocks have struggled to gain altitude. The NYSE Arca Airline Index, an index that tracks U.S. and international airlines, is up about 5 per cent over the past 12 months, as of January 8², while the S&P 500 is up nearly 24 per cent over the same period.³

With no sign that demand for travel will slow any time soon, investors interested in this sector may be wondering if it’s only a matter of time until airline stocks take off. To help you understand the industry, we look at some of the factors that affect airlines and things you might want to consider before adding these stocks to your portfolio.

Look at the fleets

The first thing to know about airlines is that there’s more to their success than filling seats. An airline’s fleet makeup, fuel costs, competition, and the markets it serves and regulations affecting it are just some of the factors one should take into account if considering investing in this sector, explains Jacques Roy, a professor in the Department of Logistics and Operations Management at HEC Montréal.

An airline’s operating cost is a key metric investors should pay attention to, and this can vary depending what types of planes make up a fleet. Generally, airlines can better manage costs by limiting the types of aircraft they maintain.

Flying several different plane models can get expensive, due to the different maintenance requirements for those jets and the cost of keeping pilots trained on each type of aircraft, explains Roy. Limiting the fleet to a single type of jet has been the secret sauce for most discount carriers. Although discount airlines are not really a factor in Canada, they have a bigger presence across Europe and the U.S., he adds.

The age of a fleet is another important consideration. Newer fleets can improve an airline’s reputation since they tend to be more reliable and comfortable, notes Roy. The advanced technologies going into planes also significantly boost fuel efficiencies, which helps airlines control costs and allows planes to service longer routes.

More destinations can drive up costs

Another thing to pay close attention to is the routes an airline serves and where they fly out of. Some airlines focus on secondary airports and only fly short-haul routes, which tends to mean lower fees and faster turnaround times. This means planes can spend more time in the air. “Instead of landing at the busier airports, where an airline has to wait for permission to land and taxi forever, they may be able to make one more flight a day flying out of a secondary airport,” says Roy.

Shorter routes also often allow pilots and flight crews to get home every night, which can lower costs, and gives airlines more flexibility to adjust quickly to demand changes. Smaller airlines and low-cost carriers are able to take advantage of shorter routes because they’re not obligated to serve specific markets.

Smaller carriers can also more easily adjust their routes according to where people want to go, particularly in Europe, where companies tend to focus almost exclusively on flying sunseekers north-south in the winter and vacationers east-west in the summer. Large airlines, outside of Canada, often don’t have that luxury.⁴ Major carriers have to maintain a certain level of service to continue accessing some airports, while smaller airlines are willing to give up on a market they don’t find profitable.

Larger airlines have the advantage of serving more markets, offering more amenities and operating out of the newest terminals, but they also have their own set of hurdles. For instance, more complex networks can create logistical challenges, which can expose carriers to costly weather and labour disruptions. As Roy explains, large airlines that serve smaller communities using the hub-and-spoke model are more susceptible to significant weather events.

When a single plane can service several different cities in a single day, any disruption can have a cascading effect on the whole network. Part of the reason for this is that large airlines need time to reposition planes and personnel for when operations resume.

“If there’s something going on at London’s Heathrow, it will disrupt the whole world,” he says. “Flights leaving from Montreal, Toronto will be cancelled because they cannot land at Heathrow.”

Efficiencies on the ground matter in the air

Load factor is a term you’ll hear if you follow the airline sector. It refers to how many seats are booked on any given flight. A 100 per cent load factor might sound ideal, but most airlines don’t want to hit that level until closer to takeoff to capture lucrative last-minute bookings, says Roy.

“Business travellers are prepared to pay the full economy price because they need to travel,” notes Roy. This ticketing strategy takes discipline, but the best airlines know how long they can hold back seats and when they have to put them on sale if they aren’t selling as quickly as expected, he says.

Even how airlines board and deboard passengers can make a difference to their costs. Some European airlines have shortened their turnaround time by wheeling stairways up to the front and rear exits to load and unload passengers, rather than using a single jetway.⁵

Other ways to invest in the airline industry

Investment opportunities in airlines will vary by market, but if this is a sector you’re thinking about adding to your portfolio, there are companies outside of the passenger jet market to be aware of. For example, aircraft overhaul companies, which provide required inspection and maintenance services to ensure a plane’s continuing airworthiness, could be another way into this segment. Jets must undergo significant checks after a certain number of hours, which requires specialized labour and equipment. If an airline has a variety of jets in its fleet, it may give the task to a third party.

Cargo carriers are another option. Removing passengers from the equation removes some of the complexities of operating an airline, as it eliminates the risk of passenger complaints, which can trigger fines and increase costs. Yet, cargo tends to be a low-margin business with fewer barriers to entry. During the pandemic, Air Canada, for instance, successfully converted some of its older passenger jets to freighters, explains Roy.

It’s also likely a good idea for potential investors to understand the rules for airlines in each country. In Canada, for instance, foreign airlines are prohibited from flying between two airports within the same country. That’s been a benefit for Canadian air freight services because the rule limits the major U.S. package companies to central hubs in the country, leaving other companies to handle flights between cities, notes Roy. 

When the economy does well, airlines do well, Roy says. Unfortunately, airlines can’t control the next recession or the impact of decisions made by politicians. “Successful airlines are those who are trying to control their costs as much as possible, who are operating in an environment that is favourable to them,” he says.

¹ Source: Airports Council International, "ACI World Projects 10% Growth for Passenger Traffic in 2024 To Reach 9.5 Billion", September 2024

² Source: Google Finance, "NYSE Arca Airline Index YTD", January 2025

³ Source: Google Finance, "S&P 500 1Y", January 2025

⁴ Source: McKinsey & Company, "How airlines can handle busier summers—and comparatively quiet winters", January 2024

⁵ Source: Simple Flying, "How Do European Budget Airlines Afford To Offer Such Low Fares?", December 2024