When the Federal Reserve cuts interest rates, like it did in September 2025, the best sectors to watch are those tied to consumer spending. Lower borrowing costs ease credit card pressures and free up cash for discretionary purchases. This is why airline stocks have seen such strong momentum in recent quarters, a trend that is likely to continue in the short term.
Among exchange-traded funds (ETFs), the First Trust Nasdaq Transportation ETF (NASDAQ: FTXR) has delivered a robust 11.6% return to its shareholders over the past quarter. Notably, most of the top holdings in this ETF are comprised of airline stocks.
Zooming in, keeping some of these stocks in a watchlist can be a great way to have a trigger finger ready to hover over the buy button for names like American Airlines Group Inc. (NASDAQ: AAL), United Airlines Holdings Inc. (NASDAQ: UAL), and Delta Air Lines Inc. (NYSE: DAL) today.
American Airlines: The Best Risk-to-Reward Ratio
Out of the three airlines on this list, American Airlines offers the best risk-to-reward ratio, given the minimal downside risk associated with this company. As the stock trades at only 65% of its 52-week high, the gap to be filled on the upside is significantly larger than what could bring the stock lower.
Trading at this low, it's likely that most bearish scenarios have already been priced into the stock, leaving bulls with an open field ahead of them for American Airlines to catch up to its close peers in terms of relative price action.
Since this airline is more focused on domestic travel, it is not surprising to see it lag in terms of performance; however, the recent Fed cuts may help change that in the coming months. As domestic travel is now poised for a potential boost in demand from a more relaxed consumer, the Wall Street consensus price target of $16.59 per share may become a reality.
This view calls for a 34.6% upside from today’s prices. However, even that is still below American Airlines' 52-week high of $19.10, leaving an additional gap to be filled.
Of course, there needs to be a strong reason for markets to fill this gap, and the recent 95-cent earnings per share (EPS) beat, which exceeded the MarketBeat consensus of 79 cents, can be a great start.
Optimism Rises for United Airlines
This airline is more exposed to international and long-haul flights, which is where one crucial factor comes into play for the business model. Longer flights logically require more fuel, and given the recent low oil prices, United Airlines will be able to beat expectations.
And beat it did, as the company reported $3.87 in EPS above the MarketBeat consensus of $3.81, though by trading at 90% of its 52-week high (leading the pack in today’s list), markets are more likely starting to bet on the future of this company rather than its present.
With this in mind, investors can see similar behavior coming from the bearish side of the equation, as the short interest for United Airlines declined by 7.4% over the past month alone, creating a very real chance of bearish capitulation as short sellers realize low oil prices and rate cuts will be the tailwinds this company needs to keep rallying.
More than just the bears admitting they’re wrong, some Wall Street analysts saw enough evidence to push their price targets above the $112.57 consensus, such as Jamie Baker from J.P. Morgan Chase, who assigned an Overweight rating and a $149 per share price target.
Shooting for 42% upside and a new 52-week high should be enough to keep the bears running and attract new shareholders.
Institutions See a Premium for Delta Air Lines
The press release for the company’s latest financial quarter will highlight that the majority of Delta Air Lines’ revenue was driven by premium ticket sales. As a result, the airline's margins are expected to improve significantly, evidenced by the current 13% operating margin, exceeding the previously guided range of 9% to 11%.
Bigger margins will trickle down into earning power for Delta, which is why institutions like State Street justified boosting their holdings by 2.6% as of August 2025, resulting in a net position of $1.1 billion, or 3.5% ownership, as of today.
The premium airline service receives the most attention, but that’s not all it gets.
This optimism spilled over into Wall Street, where Jamie Baker wasn’t satisfied with only boosting United Airlines stock but also raised his price target for Delta Air Lines from $72 per share to $85 per share (44% upside). This is significantly above the $66.56 consensus and also marks a new 52-week high for the stock.