"I think it is still boom time for airlines, at least for the foreseeable future," said Jack Dutton, editor of Airfinance Journal. "The U.S. carriers have particularly solid business plans and are making most of the profits in the airline industry."
That is, they are reinvesting in new aircraft and infrastructure.
"The aircraft leasing market is very competitive right now," said Dutton. "Carriers have easy access to aircraft financing at low rates, meaning they can grow their fleets and expand quickly." Commercial airlines made about 9 percent return on their invested capital, according to IATA.
But how long can this really last?
"It already had a great run, so there is always a question of 'How much is left?'" said Jerry Braakman, chief investment officer for First American Trust, which oversees $1.1 billion in assets. The company bought stake in Delta for $10.41 a share in 2012. Last year it sold the last of its Delta stock for about $40 per share, believing the recovering airline had hit its peak. It is now trading at around $48.
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To better diversify, Braakman suggests air travel–interested investors look beyond the temperamental business model of the actual airlines — with its fuel price, maintenance cost and unionized labor agreement considerations — to aircraft manufacturers and component suppliers such as Boeing, Airbus and Honeywell, whose order books can be important indicators for the health of the industry moving forward.
Look for order deferrals on large aircraft, for example, which "is not usually a good sign," he said.
If airlines are fighting for "market share and not necessarily profitability," as many foreign carriers seem to be doing, "that's not usually good for investors," Braakman said.
"Investing in a sector like the airlines industry may be a way to capitalize on an improving consumer's personal balance sheet and a return to profitability for most airlines," said Matthew Carbray, a certified financial planner for Ridgeline Financial Partners. "Low oil prices have certainly helped, as has the mergers and acquisitions that have improved scale and operational efficiency.