The airline industry is calling some of the most bullish outlooks from Wall Street analysts right now, and while some investors may be confused by this behavior, recent travel activity—and numbers—justify taking another look at these transportation stocks and whether they can actually deliver on the perceived momentum for 2025. This is where today’s list of airline stocks comes into play.

Connecting the dots is what gets investors paid, and today, investors will connect the dots between record-level Transportation Security Administration (TSA) numbers and the Federal Reserve (the Fed) cutting interest rates to keep boosting the leisure and travel industry, which has proved itself to be one of the strongest in recent services PMI index reports.

With that in mind, these Wall Street analysts have chosen to boost companies like Southwest Airlines Co. (NYSE: LUV), United Airlines Holdings Inc. (NASDAQ: UAL), and the classic American Airlines Gorup Inc. (NASDAQ: AAL). Each offering a different set of strengths and fundamental stories, they all share the common fact of being tapped into the strengthening trends in travel activity.

Southwest Airlines Stock Benefits From Domestic Travel Activity

Speaking of connecting the dots, investors can see that the rising activity in bookings and experiences from Airbnb Inc. (NASDAQ: ABNB) can be another gauge to measure how strong domestic travel trends have been and are likely to continue to be. Of course, these rising bookings need a middleman, and that’s air travel.

This is where Southwest Airlines tock comes into play, as it dominates the affordable domestic travel industry to make these Airbnb bookings and experiences happen. Investors could pin that fundamental truth to the 20.3% performance the stock has delivered over the past 12 months, but there’s much more to it.

Wall Street analysts now forecast up to $0.81 in earnings per share (EPS) in Southwest Airlines for the next 12 months. This would mean a massive five-fold increase from today’s $0.15 EPS levels, and as earnings mainly drive stock prices, investors can start to see where the upside is coming from in this name.

That being said, analysts from Morgan Stanley decided to keep their overweight rating on Southwest Airlines stock as of December 2024. This time, however, they boosted their valuations up to $42 a share, calling for as much as 25% upside from today’s prices.

Institutional Capital Joined Analysts in United Airlines Stock

As of November 2024, those from State Street closed their quarter by boosting their holdings in United Airlines stock by 0.8%. While this may not sound like much on a percentage basis, the recent allocation brought their net position to a high of $588.9 million today, or 3.2% ownership in the company.

The reasoning behind this buy might have come from the same trends seen in Southwest Airlines, the ones coming from rising domestic travel numbers. As a matter of fact, recent TSA travel numbers would show investors that up to three million passengers flew on the first of December 2024.

This is a record day for the most traveled in a single day, but the trends remained high, with 2.5 and 2.8 million being the average day for the past quarter. What this means for investors is that, by the time the first quarter 2025 results come about, airline stocks with the largest market share (such as the ones in this list) will likely report favorable earnings.

Going back to Wall Street, Morgan Stanley also decided to pay attention to United Airlines stock. As of December 2024, their view of an overweight rating and a $130 share price target would mean a net 36% upside from where the stock trades today, not a common upside for an airline.

Here’s Why Markets Overpay for American Airlines Stock

Across the three airlines on today’s list, Southwest Airlines and American Airlines hold the most market share for domestic travel, but there is one major difference. American Airlines also has exposure to international travel routes, giving it an advantage to be squeezed by investors during this strong dollar environment.

This is because, as Americans have stronger buying power in foreign nations, international travel might become more attractive in the coming months, helping stocks like American Airlines get the most upside. Wall Street analysts, particularly those from Raymond James, have also spotted that trend.

As of December 2024, these analysts see the stock trading at $24 a share for 41% upside to lead today’s list. That might be why American Airlines stock trades at a 51.4x price-to-earnings (P/E) ratio today, a significant premium to the transportation industry’s average 18.2x multiple.

Some may call this expensive, but others will understand that markets will always pay a premium for stocks that they believe will outperform peers in the coming months. American Airlines stock is one of those.