Recently, I've been looking at airline stocks and noticed that this sector has rebounded quite a bit lately, making it worth a deeper discussion.

Speaking of which, the airline industry has experienced quite a few ups and downs over the past few years. The three years of the pandemic saw heavy losses, but since 2023, there has been a rebound, and now it has almost recovered. According to the International Air Transport Association's forecast, by 2025, the number of global travelers will have surpassed pre-pandemic levels, and by 2040, demand for air travel is expected to double, increasing from 4 billion to 8 billion passenger trips, with an average annual growth rate of about 3.4%. This suggests that airline stocks still have long-term opportunities.

What makes the airline sector interesting is that it is a typical cyclical industry. During good economic times, both business and leisure travel flourish, and airline profits soar; during downturns, the opposite happens. So, the core logic of investing in airline stocks is to seize opportunities during economic expansion periods.

From the perspective of analyzing Taiwanese airline stocks, EVA Air, China Airlines, and StarLux are the three main targets. EVA Air, as Taiwan’s leading airline, has a modern fleet, a well-developed international route network, and recently maintained a high passenger load factor of over 92%, making its stock relatively stable. China Airlines is a long-established airline with brands like Mandarin Airlines and Tigerair, and its combined passenger and cargo operations are also quite stable. StarLux is a new full-service airline, although it was founded recently, its growth potential is obvious, with a fleet of new aircraft and good differentiation in service.

On the U.S. side, Delta Air Lines, Copa Airlines, and Ryanair are worth paying attention to. Delta performs outstandingly among the four major U.S. airlines, with a high proportion of business travelers and good cost control. Copa Airlines, as a hub in Latin America, benefits from increased disposable income in the region, with recent significant growth in performance. Ryanair, as a European low-cost carrier leader, has leading operational efficiency globally and is actively expanding.

When investing in airline stocks, several key factors should be considered. First is oil prices, which directly affect operating costs; rising oil prices tend to suppress airline stocks. Second is interest rates; higher rates mean more expensive financing for airlines, which is a big pressure for this capital-intensive industry. Third is the global economic situation, which determines the strength of travel demand.

The advantages of airline stocks include strong rebounds during economic recoveries, and large airlines often hold monopolistic advantages in their respective markets, with routes and traffic rights that are not easily replicated. Nowadays, airline revenues are not only from ticket sales; ancillary income from baggage fees, seat upgrades, mileage programs, and cargo is also substantial, making profit structures more stable.

However, there are clear disadvantages as well. The cost structure of the airline industry is very high, with fuel, labor, and maintenance costs being major components. When the economy turns sour, reducing costs becomes very difficult. Additionally, airlines generally have high debt ratios and require large amounts of cash to sustain operations. When external environments worsen, they can easily fall into trouble. Black swan events like pandemics and geopolitical crises have especially large impacts on airline stocks.

From an investment strategy perspective on Taiwanese airline stocks, it’s best to enter when the economic cycle is approaching expansion, as profits grow fastest during this period. Diversification is also important—don’t put all your chips into a single airline stock; it’s wise to allocate both Taiwanese and U.S. airline stocks. Most importantly, choose companies with strong cash flow to weather industry downturns.

Legendary investors like Warren Buffett are now optimistic about U.S. airline stocks, which somewhat confirms the trend. Wall Street analysts have also started recommending airline stocks; Morgan Stanley, for example, has upgraded some airline stocks from neutral to overweight, with forecasts of significant gains. All these signals suggest that airline stocks may be brewing new opportunities, especially for investors who can tolerate volatility.