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Should airline shares belong in my portfolio?

Most airline stocks have not rewarded their shareholders well in the first quarter of 2019. With the recent crash of Boeing’s 737 MAX and the uncertainty over the continuing Brexit saga, dark clouds have also rolled in over the industry. 

Today, I’d like to discuss the cyclical as well as long-term factors that I believe may drive the price of airline stocks, so that interested readers may also use some or all of them make informed decisions when separating winner shares from the losers. This article will be shortly followed by another one where I’ll highlight which airline shares I’d watch in the coming months. 

Industry fundamentals

In 2019,  the International Air Transport Association (IATA) expects 1% of global GDP to be spent on air travel. A strong economy, low unemployment, and increased consumer spending worldwide have been the recent tailwinds for the industry.

There are several crucial drivers of change that affect the industry as well as airline management, and for investors, the share price of airlines. These factors include:

  • Societal developments, such as urbanisation and demographic changes.
  • Economy, such as the price of oil, business cycles and volatility.
  • Technology, such as aircraft development, cybersecurity, or the role of social media in customer engagement.
  • Environment, such as regulation of emissions and noise pollution.
  • Politics, such as regulatory changes, trade protection, and response to terrorist threats.

Within this context, airlines are under constant pressure to improve performance, ensure passenger safety, increase efficiency, become technologically advanced, and at the same time excel in customer satisfaction.

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