A robust summer travel season and improved international and business travel helped major U.S. airlines deliver profits in the second quarter. However, many carriers missed Wall Street’s earnings expectations as they battled sky-high fuel costs and operational challenges, mainly due to staffing issues. Airlines have raised ticket prices to mitigate the impact of higher costs. U.S. airlines are also cutting down capacity to ensure that they meet demand with available resources and avoid flight cancellations or delays. This makes airline stocks a hit or miss proposition.

Looking ahead, while demand remains strong, U.S. airlines have cautioned investors about industry-specific operational challenges, higher fuel prices, and an economic slowdown.

Bearing that in mind, I used the TipRanks Stock Comparison Tool to compare the following airline stocks and pick the one that Wall Street analysts are most bullish about.

Here are the three stocks I will be comparing today:

Airline Stocks: United Airlines (UAL)

United Airlines (NASDAQ:UAL) delivered adjusted earnings per share (or EPS) of $1.43 in the second quarter (Q2), marking its first profitable quarter without federal aid since the onset of the pandemic. However, the company failed to beat analysts’ revenue and earnings expectations.

Robust demand, especially for leisure travel, helped United generate revenue of $12.1 billion, up 6.2% from Q2 2019. The company expects its Q3 revenue to rise 11% from 2019 levels, driven by strong demand trends even as capacity will be down nearly 11%.

However, United significantly scaled back its growth plans for 2023 amid the ongoing challenges. It now expects 2023 capacity to increase no more than about 8% compared to 2019, down from the initial outlook of 20% growth.

Following the print, Cowen analyst Helane Becker cut her price target for UAL stock to $75 from $86.50 but maintained a “buy” rating. Becker stated that the biggest investor concern seems to be the aircraft capital expenditure forecast of $20 billion over the next four years, as the company aims to replace older aircraft with more fuel-efficient models.

Overall, Wall Street analysts are cautiously optimistic on UAL stock, with a “moderate buy” consensus rating based on four “buys,” six “holds,” and one “sell” rating. At $47.67, the average United Airlines price target implies 31.39% from current levels.

Delta Air Lines (DAL)

Delta Air Lines’ (NYSE:DAL) Q2 revenue grew 10% to $13.8 billion. However, adjusted EPS of $1.44 significantly fell behind expectations due to the impact of operational disruptions and higher costs. Delta expects Q3 revenue growth in the range of 1% to 5% on capacity that is 15% to 17% lower than its 2019 levels.

Delta now expects its full-year capacity to be 15% lower than that of 2019, reflecting a 5% reduction from its original guidance. That said, Delta remains confident about generating “meaningful profitability” in 2022. Management reassured investors about meeting the 2024 goals for EPS of over $7 and free cash flow of more than $4 billion.

Citigroup (NYSE:CITI) analyst Stephen Trent thinks that the sell-off in DAL stock following the Q2 results seems overdone. The analyst noted that the company’s margins and cash flows have improved, yet the stock has fallen to mid-2020 levels. Delta generated $1.6 billion in free cash flow in Q2.

Trent opined that the market might not be fully taking into account Delta’s flight schedule course correction, which should lead to more normalized operations in Q3, as well as enhanced margins. He also believes that Delta is well-

positioned to navigate an economic downturn. In line with his optimism, Trent initiated a 90-day positive catalyst watch on DAL stock and maintained a “buy” rating.

All in all, Delta scores a “strong buy” consensus rating based on nine “buys” and two “holds.” The average Delta Air Lines price target of $47.55 suggests 51.72% upside potential from current levels.

Airline Stocks: American Airlines (AAL)

American Airlines (NASDAQ:AAL) delivered adjusted EPS of 76 cents in Q2, but fell short of analysts’ consensus estimate of 77 cents. Like its rival United, American also delivered its first quarterly profit since the pandemic began in 2020.

American’s Q2 revenue grew 12.2% to $13.4 billion versus the comparable quarter of 2019. The company expects Q3 revenue to increase in the range of 10% to 12%, with 8% to 10% lower capacity compared to 2019 levels. Meanwhile, American is focused on debt reduction and is on track to bring down its debt levels $15 billion by the end of 2025.

While American stated that it expects to be profitable in Q3, shares fell following the results. Investors are concerned over the lower capacity, despite robust demand.

In reaction to the Q2 results, Trent cut his price target for AAL stock to $16 from $16.75 and reiterated a “hold” rating. While American generated its first profit since the onset of Covid-19, Trent feels that investors might need more evidence to determine whether the company can hold onto its improved unit economics in the upcoming quarters.

Overall, Wall Street analysts are sidelined on American Airlines stock, with a “hold” consensus rating based on six “holds” and two “sells.” The average American Airlines price target of $15.14 implies 11.57% upside potential from current levels.

Conclusion

Shares of major airlines are in the red due to looming recession fears. Investors are concerned about the impact of a slowdown in consumer spending on travel demand and profitability woes, considering the elevated fuel prices and labor costs.

Nonetheless, Wall Street analysts see the most potential in Delta. They estimate a higher upside potential in DAL stock compared to the other two.

Delta continues to upgrade and optimize its fleet as part of its efforts to improve its margins over the long term. Aside from the new A220-300 aircraft, Delta is also adding a 100 Boeing 737 MAX aircraft to its fleet, with the new aircraft expected to be 20% to 30% more fuel efficient.

On the date of publication, Sirisha Bhogaraju did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Sirisha Bhogaraju has over 15 years of experience in financial research. She has written in-depth research reports and covered companies across various sectors, with a primary focus on the consumer sector. Sirisha has a master’s degree in finance.