Investing in ASX airline shares

As domestic and international tourism recovery amps up after the pandemic interruption, are we seeing growth opportunities in the airline sector?

A pilot stands in an empty passenger cabin smiling with his arms crossed looking excited

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After years of border closures and other disruptions caused by the COVID-19 pandemic, domestic and international tourism is finally back with a vengeance. This is great news for embattled airline companies that saw revenues plunge throughout the pandemic. 

So, is now the time to consider adding some airline shares to your portfolio? Let's take a closer look at the sector to see if airline stocks are right for you.

What are ASX airline shares?

Airline shares are a sub-group of travel and tourism shares that trade on the stock market. They represent companies that operate airlines, such as Qantas Airways Limited (ASX: QAN) and Air New Zealand Limited (ASX: AIZ). We also consider airports such as Auckland International Airport Limited (ASX: AIA) alongside airline shares. 

The travel sector is an integral part of a well-functioning economy. However, airlines have historically been hit-and-miss investments. 

Airlines are heavily dependent on economic cycles. In boom times, people have more money to spend on fancy holidays, and business travel increases as companies can afford to splurge on investor roadshows, corporate functions, and other in-person events.

However, when money is tight, the first thing households tend to cut back on is luxury items like holidays. Companies will also reduce their discretionary spending on corporate travel and entertainment. As economic activity slows, there is less cross-border deal-making, reducing the demand for corporate travel.

This means airline stocks are typically fair-weather friends to investors. They can deliver substantial gains when times are good but may compound your portfolio's losses when the economy is struggling and share prices are falling.

Why invest in them?

As with all companies, investing in airline shares offers several advantages and disadvantages.

Because airlines are an essential part of the economy, having some exposure to airlines in your portfolio may help unlock additional returns, particularly when the economy is in a healthy growth phase.

However, we know that when black swan events occur – like a global pandemic, for instance – airline shares tend to be among the hardest hit. But it's not just global pandemics investors have to worry about. 

Other impossible-to-predict disastrous events (like plane crashes or terrorist attacks) can also negatively impact the industry. Demand for air travel is likely to decrease following such events, which can dampen profits for airline companies.

Riding the ups and downs

This can make airline shares particularly volatile. For example, in the years before the pandemic, Qantas was an outstanding share to own – surging from $1 back in 2014 to more than $7 by early 2020. However, airline share prices tumbled during the COVID-19 pandemic when governments worldwide restricted international travel to try and curb the spread of the deadly virus.

The Qantas share price hit a low of $2.36 in March 2020 — though it has now (almost) recovered to pre-pandemic levels, trading above $6. All these quick ups and downs can be tough on your portfolio, particularly if you find yourself in a position where you need to sell your shares urgently.

Even as tourism resumes in earnest after years of COVID-19 restrictions, other macroeconomic events create headwinds as airlines try to return to profitability. Rising interest rates and soaring inflation dampen consumer spending and confidence, while the Russia-Ukraine conflict continues to drive volatility in global oil prices.

Fuel is one of the most significant expenses for airline companies, and higher oil prices are likely to squeeze profit margins just when the industry was hoping to take off.

Top airline shares on the ASX

There are a handful of companies involved in the aviation industry listed on the ASX. These include smaller airlines such as Regional Express Holdings Ltd (ASX: REX) and air charter service Alliance Aviation Services Ltd (ASX: AQZ), and even airports like Auckland Airport. 

Here are three top airline stocks ranked by market capitalisation from highest to lowest.

Qantas Airways Limited

Australia's flagship carrier and largest airline
Air New Zealand Limited

New Zealand's flagship carrier
Alliance Aviation Services

Ltd (ASX: AQZ)
Leading Australian air charter company servicing the resources sector


Qantas is Australia's largest airline. It has a significant pedigree as one of the oldest airlines still in operation in the world, behind only KLM Royal Dutch Airlines and Colombian airline Avianca.

Qantas recently announced that strong demand for travel means it now expects underlying profit before tax of almost $2.5 billion for full-year FY23. The airline has previously noted that customers continue to prioritise travel ahead of other spending categories (presumably after years of being stuck at home). 

Domestic capacity has already returned to pre-COVID levels, while a ramp-up in business activity later this year should see international capacity reach pre-COVID levels by March 2024.

Air New Zealand

New Zealand's flagship carrier Air New Zealand is among the top airlines in the world in terms of credit ratings. Before the pandemic, it operated more than 3,400 flights per week, transporting more than 17 million passengers every year.

Its share price plunged at the onset of the COVID-19 pandemic in early 2020 and hasn't increased much since. New Zealand had some of the strictest border policies in the world during the pandemic. This hit travel shares like Air New Zealand especially hard.

Thankfully, things are looking up for the airline (even if it hasn't been reflected in its share price). It returned to profitability in 1H FY23 with an NPAT of $213 million. The airline expects earnings before tax (and other significant items) for the full-year FY23 to be no less than $580 million. This is a significant update on previous guidance issued in April, mainly due to moderating fuel costs and strong demand.

Alliance Aviation

Small-cap Alliance is one of the few airline shares now trading significantly above its pre-COVID levels. It recently upgraded its FY23 guidance for underlying net profit before tax to $56.9 million.

Alliance is a leading air charter company operating in Australia and New Zealand. While the company services the tourism, corporate, sporting and government sectors, it earns most of its money from the resources sector. It is Australia's major FIFO ('fly in, fly out') operator, flying resources sector employees in and out of remote mining locations.

Alliance has seen an increase in flying activity, which is one of the key drivers behind its upgraded profit guidance. For example, it recently renewed its contract with Australian mining, fertiliser and chemical company Incitec Pivot Limited (ASX: IPL) to provide air transport services between Townsville and its mine in northwest Queensland.

What might the future hold for Australian airlines? 

Over the next few years, there are many trends to watch in the Australian airline industry. The trajectory of the industry's recovery post-COVID will be crucial but isn't helped by the war in Europe and runaway inflation, just as many international borders are reopening.

The federal and state governments are also investing heavily in airport infrastructure. Sydney's second airport, the Western Sydney Airport, is due to open in 2026. And both Melbourne and Hobart airports are expanding to handle increased traveller numbers.

Just what domestic and international travel will look like long term, post-pandemic, is yet to be determined. The effect of changes in consumer behaviour prompted by the pandemic – such as telecommuting replacing in-person meetings – has yet to be fully understood.

The rapid, forced adoption of remote working may have permanently reduced the demand for corporate travel. During the pandemic, people became more accustomed to communicating digitally, cutting the need for in-person meetings and events. With this digital infrastructure now firmly in place, corporate travel may never fully return to the levels seen before the pandemic.

On the flip side, the pandemic forced more people to shop online, increasing the demand for freight services. This helped keep many airlines afloat during the pandemic, as they used their fleet to transport cargo rather than holidaymakers. 

The shift towards e-commerce may also be a permanent change in consumer behaviour and could continue to sustain airline revenues into the future. 

Pros of investing in ASX airline shares

The sector is recovering: People are travelling again, and airlines are returning to profitability now. Years of pent-up demand and moderating fuel costs have recently seen many airlines upgrade their profit guidances. 

Potential profits: Airline profits are at the mercy of fuel and labour costs. Still, the industry can deliver significant profits to investors when the economy is thriving or oil prices sag. 

And the cons?

Capital intensive: From a balance sheet perspective, airline companies are capital intensive, highly leveraged, and have high operating costs overall. Running an airline is not cheap. 

Recovery may be slow: Just as it looks like we are clear of COVID-19, inflation, war, and rising interest rates have dampened consumer sentiment. Demand for travel may recede as cost-of-living concerns increase. 

Are ASX airline shares a good investment?

Whether airline shares are a good investment for you will depend on your personal risk appetite and investing goals.

Airlines may be a good pandemic recovery play, but there are still many risks and uncertainties affecting the industry. You should take these factors into account before deciding whether to invest.

Airline and airport shares can perform strongly when the economy is booming and offer diversification benefits in a well-balanced portfolio. But airline shares can also be volatile, which means investors must be prepared for potentially big swings in value. 

This article contains general educational content only and does not take into account your personal financial situation. Before investing, your individual circumstances should be considered, and you may need to seek independent financial advice.

To the best of our knowledge, all information in this article is accurate as of time of posting. In our educational articles, a 'top share' is always defined by the largest market cap at the time of last update. On this page, neither the author nor The Motley Fool have chosen a 'top share' by personal opinion.

As always, remember that when investing, the value of your investment may rise or fall, and your capital is at risk.

Motley Fool contributor Rhys Brock has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Alliance Aviation Services. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.