Are you planning a trip to the beach? So are many others, including your airline. However, those who have invested in airline stocks are not seeing the returns they hoped for.

The U.S. is experiencing one of its busiest summer travel seasons, with Europe not far behind, based on airport passenger data. Despite this, U.S. airline stocks have fallen around 40% over the past five years, with European stocks down approximately 25%. This trend isn’t due to investors flocking to artificial intelligence stocks; airlines are reporting significantly reduced profit margins. Budget airlines like Southwest Airlines (NYSE:LUV), Spirit Airlines (NYSE:SAVE), and Frontier Airlines (NASDAQ:ULCC) are particularly struggling. Once considered profitable, these airlines are now finding it difficult to stay afloat.

Operating as a low-cost airline is challenging when costs are high. Currently, oil prices are around $80 per barrel, compared to about $55 before the pandemic. Other expenses have also increased. For instance, Spirit Airlines was expected to reduce its unit costs excluding fuel from 6.7 cents to 5.7 cents by 2024, but these costs are now forecasted to be 7.3 cents, according to Visible Alpha.

Pilot and cabin crew shortages have driven up wages, while weather disruptions and a lack of air-traffic controllers have led to expensive operational delays. Issues with engines and aircraft deliveries have grounded planes, increased maintenance costs, and delayed the introduction of more fuel-efficient models.

Ryanair (NASDAQ:RYAAY) stands out as an exception in Europe. Its strategy to hedge fuel costs and limit job cuts during the pandemic has paid off, enabling it to capture a significant share of Europe’s budget travel market, particularly in destinations like Italy, where its market share has increased from 27% to over 40%.

However, most airlines have struggled to attract budget-conscious travelers. The real growth post-pandemic has been in “premium economy”—a market segment offering more space and amenities that budget airlines typically do not provide. Full-service airlines have invested heavily in these offerings. Delta Air Lines (NYSE:DAL), for example, has refined its premium experience, which has helped its stock perform better than many of its competitors.

So why aren’t legacy airlines performing better? The premium economy boom is partly replacing business-class travel, which was even more profitable. Business travelers, who are less price-sensitive, have reduced spending on corporate travel. According to the U.S. Travel Association, inflation-adjusted corporate travel spending will be 13% lower this year than in 2019, and it is expected to remain flat.

A significant issue is that airlines, buoyed by strong tourism demand, have expanded aggressively. In July, the scheduled supply of seats was 8% and 0.4% higher than in 2019 in the U.S. and Europe, respectively, according to Cirium Diio Mi. Overcapacity is a bigger problem for U.S. airlines, contributing to their poor stock performance. For example, American Airlines (NASDAQ:AAL) announced a major intra-U.S. expansion in April, resulting in an 18% drop in its shares this year.

Today’s unbundled “basic economy” tickets allow legacy carriers to compete directly with low-cost airlines. Additionally, larger narrow-body planes have replaced many regional jets since 2019, keeping U.S. airfares at 2019 levels despite a brief rise in 2022.

To address this, many airlines are now reducing supply. Boeing’s production challenges, combined with Airbus’s (EPA) limited manufacturing capacity, are expected to constrain seat availability for years, potentially leading to higher fares.

Nevertheless, investors should be cautious when investing in airlines other than top performers like Ryanair and Delta Air Lines. As with summer travel, airline stocks often come with hidden costs.