Are airline stocks set to rally like it's 2024? Here's what might be missing this time around.

Delta Air Lines' better-than-expected earnings and 2025 guidance have spurred optimism for a repeat of last year's airline stock rally, ahead of upcoming Q2 reports from United and American Airlines. However, analysts caution that a broad sector rally is unlikely this year due to "more demanding" valuations, anticipated capacity trimming, uncertain demand, and challenging year-over-year comparisons, advising investors to adopt a patient and selective approach to the space.

Analysis

Delta Air Lines' (DAL) better-than-expected Q2 earnings and restored 2025 guidance have sparked investor hopes for a repeat of the sector's 2024 second-half rally, a period where the JETS ETF surged 45%. However, analysts express significant caution, viewing a similar rally this year as "possible, but not very likely." This cautious outlook is predicated on several headwinds not present last year, including more demanding stock valuations, planned capacity reductions across the industry, uncertainty in overall travel demand, and challenging year-over-year comparisons against a strong Q4 2024. The sector's performance has lagged the broader market, with the JETS ETF down 1.5% year-to-date compared to a 6.6% gain in the S&P 500. Upcoming earnings from United Airlines (UAL) and American Airlines (AAL) are critical tests, with analysts forecasting lower adjusted earnings per share for both carriers compared to the prior-year quarter. For instance, UAL is expected to report an adjusted EPS of $3.81, down from $4.14. The consensus suggests that a "notable acceleration in demand," seen as more probable in early 2026, is necessary to propel airline stocks meaningfully higher, justifying a patient and selective investment strategy.

Key Decisions for Investors

• Adopt a selective approach to the airline sector, as a broad-based rally is considered unlikely; focus on individual company fundamentals rather than investing in the entire sector via an ETF like JETS.
• Closely monitor the upcoming earnings reports from United and American, paying specific attention to forward-looking guidance on demand and capacity, as this will be a more critical driver than historical performance.
• For long-term positions, consider the analyst preference for Delta and United as the 'best way to play the sector', while exercising increased caution with weaker-performing names like American Airlines, which is down 30% YTD.
• Recognize that current valuations are more demanding than last year, implying that investors should manage expectations and be prepared for continued volatility until there is clear evidence of a significant demand acceleration.