Airline investors should start packing their bags. News from the past few weeks suggests these stocks are about to embark on a long and profitable journey.

However, one company seems destined to be left on the runway. Spirit Airlines (SAVE.N) said this week it is seeking a debt restructuring that could wipe out existing shareholders, a major setback for the industry's biggest disruptor of the past decade.

Others could go in the exact opposite direction. Spirit Airlines’ woes and Trump’s election are expected to provide the sector’s other stocks with their strongest tailwind in years.

Airline stocks surge on Trump's victory

Airline stocks have already surged on Trump's victory as the market expects consumer spending to be boosted by growth-oriented policies such as tax cuts. In addition, changes in the regulatory environment are also beneficial to the airline industry. The Trump administration is unlikely to focus on monopoly power issues as much as the Biden administration.

The aviation industry has been one of the biggest beneficiaries of the wave of consolidation over the past few decades. Fewer competitors in the industry means existing airlines have greater power to raise prices and capture market share on profitable routes. A series of airline mergers in the early 2010s gave Delta Air Lines (DAL.N), United Airlines (UAL.O) and American Airlines Group (AAL.O) significant market power. Shares of Delta, United, JetBlue Airways (JBLU.O) and Southwest Airlines (LUV.N) all more than doubled from the end of 2012 to the end of 2014, while American Airlines has seen its stock price rise since it reorganized and went public following its bankruptcy in 2013. Also surged significantly.

Analyst: Airline stocks may double again

Some analysts believe that rally could be on the horizon again.

"This is the best industry environment for the U.S. airline industry in a decade," said Conor Cunningham, an analyst at Melius Research. He believes airline stocks could double again.

The NYSE Arca Airline Index has risen 2.8% since the close of trading on Election Day, Nov. 5. However, that performance was dragged down by Spirit. The most important companies in the airline industry have performed even better: Delta Air Lines is up 11%, United Airlines is up 14% and American Airlines is up 8%.

Spirit's predicament and its impact on the industry

Spirit Airlines accounts for about 4% of U.S. airline capacity. It has been plagued by regulatory hurdles and operational problems. Earlier this year, a judge blocked Spirit's proposed merger with JetBlue Airways after a challenge from the U.S. Department of Justice. A potential merger with Frontier Group (ULCC.O) has also fallen through, according to The Wall Street Journal. In addition, some of Spirit's no-frills pricing innovations have been adopted by competitors, making it more difficult for it to stand out.

If low-cost carriers are no longer able to disrupt the industry, other airlines may have better control over capacity and price direction.

Cunningham expects airlines to have fewer seats available, giving them more pricing power, and cut his forecast for capacity growth next year to 3% from 6.2% previously.

The benefits of falling oil prices

Another positive factor for the industry is the downward trend in oil prices, which most analysts expect to fall further next year, and lower fuel prices typically boost airline profit margins.

Valuations remain attractive

Despite their recent strong performance, airline stocks still trade at relatively reasonable valuations: Delta Air Lines trades at 8.9 times its 2025 expected earnings; United Airlines at 7.4 times; and American Airlines at 6.9 times.

Spirit's stock price may be "staying on the ground," but the rest of the airline stocks look ready to take off.

Article forwarded from: Jinshi Data