Hot Picks: Airline sector shifts toward premium travel and stability

Airline stocks are navigating geopolitical disruptions and fuel volatility, but strong travel demand continues to support the sector outlook.

BNN Bloomberg spoke with Tom Fitzgerald, analyst at TD Cowen, about how technology investment, premium travel growth and industry consolidation could help airlines deliver stronger earnings over time

Key Takeaways

• Consumer demand for travel remains resilient, particularly for international routes, even as geopolitical disruptions affect some regions.
• Airlines are investing heavily in technology, including mobile platforms, connectivity and predictive maintenance, to improve efficiency and customer experience.
• Premium travel and loyalty programs are becoming larger revenue drivers, helping reduce reliance on price-sensitive economy passengers.
• Network optimization and mergers can expand international reach and create new hub strategies that improve profitability.
• Consolidation among major airlines and fewer competitors in core markets could reduce industry volatility and improve investor confidence.

Read the full transcript below:

ANDREW: Hot Picks. Let’s zero in on three airlines. Our guest likes the look of United. He says consumer demand — despite disruption in travel to and from the Middle East — looks strong, and the management team at United has credible long-term financial targets.

We’re joined by Tom Fitzgerald, analyst at TD Cowen. Thanks very much for coming on the show.

TOM: Thanks for having me.

ANDREW: Start off with United, if you would. What’s distinctive about this carrier?

TOM: We view them as having the most attractive earnings upside due to the combination of idiosyncratic tailwinds from the various initiatives management is pursuing, as well as really attractive industry fundamentals that have been ongoing over the last handful of years.

ANDREW: That’s what has been good for the industry over the past 10 years — people just crazy to travel, a tourism boom.

TOM: Yeah. Travel demand has been very resilient. International travel demand — where United is the leader among the big U.S. airlines — has seen really strong growth coming out of COVID.

There was some debate back in 2022 and 2023 about whether this was just a short-term sugar high and pent-up demand from the pandemic that would normalize, but instead we’ve seen a secular leg up in really strong U.S. outbound travel demand.

ANDREW: And what are they doing in technology that’s distinctive?

TOM: That’s a great question, Andy. They’ve had a lot of interesting investments in their mobile app, improving customer communications and the overall experience.

They’re installing Starlink across their entire fleet, which should be completed by the end of next year. That starts to enable interesting opportunities on the advertising side over the long term.

Then on the cost side, the management team is using AI and technology for things like closing the books faster, predictive maintenance and recovering from irregular operations. They tend to be very forward-thinking on the tech side.

ANDREW: I’m just looking at the stock. Over five years it has been something of a star. We’ve got a one-year chart there, but over five years I’m showing the shares up more than 80 per cent.

TOM: They’ve had a nice run lately as the market has started to appreciate the earnings upside for the business. They’ve been implementing a lot of their long-term targets since the latter part of the 2010s, and now they’re starting to approach harvest mode for all their work.

It’s a really exciting time for the company, and investors are excited as these good things come in. As they reap what they’ve been sowing, that should lead to much higher free cash flow conversion down the line.

ANDREW: Our chart there is showing a number close to 64 per cent. My Bloomberg screen is showing closer to 80 per cent.

And Delta — you like the look of this one. It hasn’t been such a great performer as United over five years, but what has this company got going for it?

TOM: They remain the leader in premium travel, corporate travel and profitability among U.S. airlines. They continue to enhance their revenue diversity, which we saw was a major contributor to their resilience last year and likely will continue to be in the years ahead.

That includes growing loyalty — with long-term targets of building that into almost a $10-billion business — expanding their third-party maintenance and repair capabilities into a multibillion-dollar business, and lowering the main cabin share of revenue to about 40 per cent. Fifteen years ago it was about 60 per cent, and that really helps reduce the volatility of the business.

ANDREW: That’s interesting. So the main cabin — the people paying economy fares — traditionally was 60 per cent of total revenue and the goal is 40 per cent?

TOM: That’s their long-term goal, yeah. Those are the most price-sensitive customers and where there’s more competition from low-cost carriers. Reducing that exposure helps build more durability into the model.

ANDREW: I’m lucky. I have a long torso and short legs, so I don’t mind sitting in those seats on aircraft.

TOM: That’s great. Gives you a lot of optionality. I’m the opposite — I’m pretty lanky, so I usually end up paying for extra legroom.

ANDREW: My wife too — she’s not having any of those seats crushed together.

Finally, Alaska Air. The stock has struggled a bit over the past five years, but you see promise here?

TOM: I do. There have been a lot of things clouding some exciting developments there — the macro environment affecting the whole industry and Alaska being predominantly a West Coast airline.

They have more exposure to West Coast fuel benchmarks, which tend to be more volatile than the rest of the industry and have been particularly volatile over the past two years.

But if you look through the noise, over the long term we think they’ll benefit from integrating Hawaiian Airlines, which they acquired in late 2024. This is a one-plus-one-equals-three type of merger. It enables a lot of network optimization, including turning Seattle into a long-haul global hub.

ANDREW: Did we lose Tom there?

TOM: Sorry about that. I think I hit the mute button.

They’re reshuffling the deck — turning Portland into more of a connecting hub, taking more share in San Diego and optimizing the Hawaiian franchise. They’re leaning into premium and loyalty as well.

About 70 per cent of their routes are 1,500 miles or longer, and those routes historically show a much higher propensity for consumers to pay for premium products. So it dovetails nicely with the overall secular backdrop.

ANDREW: Again, that’s that old circulation thing — if you’re on a long route, you don’t want to be crammed in.

Just before we go, you spend a lot of time looking at the aviation industry. Is there something the public doesn’t realize about this industry?

TOM: I think the consolidation in the U.S. specifically is really important to keep in mind. Historically there were just always too many competitors chasing too few seats.

Now you’re moving to a period where you’ll probably have six major airlines competing in the big markets, with discount carriers focusing more on underserved markets.

That should reduce volatility in profitability and revenues and give investors more conviction in underwriting investments in the sector.

ANDREW: Thank you very much, Tom. I really appreciate it. Tom Fitzgerald, analyst at TD Cowen.

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This BNN Bloomberg summary and transcript of the March 5, 2026 interview with Tom Fitzgerald are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.