The airline industry's growth prospects appear promising thanks to robust travel demand trends. The solid demand for leisure travel and business travel recovery will contribute to the industry’s growth.
Given the industry’s bright prospects, fundamentally strong airline stocks International Consolidated Airlines Group S.A. (ICAGY), Air Canada (ACDVF), and Corporación América Airports S.A. (CAAP) could be worth adding to your portfolio.
According to the International Air Transport Association (IATA), total demand, measured in revenue passenger kilometers (RPKs), in February 2024 increased 21.5% from February 2023. Total capacity in February, measured in available seat kilometers (ASK), increased 18.7% year-over-year.
International demand in February rose 26.3% year-over-year, while capacity rose 2.5% year-over-year. IATA’s Director General Willie Walsh said, “The strong start to 2024 continued in February with all markets except North America reporting double-digit growth in passenger traffic.”
He added, “There is good reason to be optimistic about the industry’s prospects in 2024 as airlines accelerate investments in decarbonization and passenger demand shows resilience in the face of geopolitical and economic uncertainties.”
This year, IATA forecasts the airline industry's net profit to reach a record $25.7 billion (2.7% net profit margin), a slight improvement over 2023. The IATA forecasts that 4.7 billion people will travel in 2024, exceeding the pre-pandemic level of 4.5 billion in 2019.
The global airline market is expected to reach $1.10 trillion by 2030, growing at a CAGR of 7.6%. This growth will be driven by increasing demand for air travel, especially in emerging markets. Investors’ interest in airline stocks is evident from the U.S. Global Jets ETF’s (JETS) 19.4% returns over the past six months.
With these favorable trends in mind, let’s examine the fundamentals of the three best Airlines stocks, beginning with the third choice.
Stock #3: International Consolidated Airlines Group S.A. (ICAGY)
Headquartered in Harmondsworth, United Kingdom, ICAGY provides passenger and cargo transportation services in the United Kingdom, Spain, the U.S., and the rest of the world. The company operates under the British Airways, Iberia, Vueling, Aer Lingus, and LEVEL brands.
ICAGY’s trailing-12-month CAPEX / Sales of 12.03% is 300% higher than the 3.01% industry average. Its 9.01% trailing-12-month net income margin is 52% higher than the 5.93% industry average. Also, its 100.42% trailing-12-month Return on Common Equity is 739.2% higher than the 11.97% industry average.
For the fiscal fourth quarter that ended December 31, 2023, ICAGY’s total revenue and operating profit increased 13.1% and 5.2% year-over-year to €7.22 billion ($7.82 billion) and €502 million ($543.98 million), respectively. Its profit after tax stood at €504 million ($546.15 million), up 117.2% from the prior-year quarter.
For the same period, its adjusted earnings per share before exceptional items increased 803.6% from the year-ago value to 50.60 cents.
Street expects ICAGY's revenue for the quarter ended March 31, 2024, to increase 7.3% year-over-year to $6.97 billion. Its revenue for fiscal 2024 is expected to increase 5.3% year-over-year to $33.53 billion. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 19.2% to close the last trading session at $4.35.
ICAGY's POWR Ratings reflect this promising outlook. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ICAGY has an A grade for Value and a B for Stability, Sentiment, and Quality. Within the Airlines industry, it is ranked #4 out of 26 stocks. To see ICAGY's additional ratings for Growth and Momentum, click here.
Stock #2: Air Canada (ACDVF)
Headquartered in Saint-Laurent, Canada, ACDVF is a major airline offering domestic, U.S. transborder, and international services, including vacation travel packages and air cargo in about 50 countries. Operating under brands like Air Canada Vacations and Air Canada Rouge, the airline has a diverse fleet of 192 aircraft and manages travel loyalty programs.
ACDVF’s trailing-12-month gross profit margin of 33.54% is 9.2% higher than the industry average of 30.72%. Its trailing-12-month EBITDA margin of 15.38% is 13.2% higher than the industry average of 13.58%. Its 9.37% trailing-12-month levered FCF margin is 44.9% higher than the 6.46% industry average.
In the fourth quarter, which ended December 31, 2023, ACDVF generated operating revenue of C$5.18 billion ($3.82 billion), up 10.6% year-over-year. The company reported adjusted EBITDA of C$521 million ($384.26 million), an increase of 33.9% from the prior year’s quarter.
In addition, the company’s net cash flows from operating activities and free cash flow grew 52.2% and 109.1% year-over-year to C$985 million ($726.48 million) and C$669 million ($493.42 million), respectively.
For the quarter ended March 31, 2024, ACDVF’s revenue is expected to increase 6.2% year-over-year to $3.83 billion. For the fiscal year ending December 2025, its EPS is expected to increase 11.2% year-over-year to $3.01.
The company surpassed the Street EPS estimates in three of the trailing four quarters. Over the past month, the stock has gained 9.4% to close the last trading session at $14.58.
ACDVF’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #3 in the same industry. It has an A grade for Value and a B for Quality. Click here to see ACDVF's Growth, Momentum, Stability, and Sentiment ratings.
Stock #1: Corporación América Airports S.A. (CAAP)
Headquartered in Luxembourg City, Luxembourg, CAAP acquires, develops, and operates airport concessions. It operates 53 airports in Latin America, Europe, and Eurasia.
CAAP’s trailing-12-month net income margin of 17.11% is 188.5% higher than the industry average of 5.93%. Its trailing-12-month EBIT margin of 29.73% is 199% higher than the industry average of 9.94%. Its 6.76% trailing-12-month Return on Total Assets is 40.9% higher than the 4.80% industry average.
During the fourth third quarter that ended December 31, 2023, CAAP’s revenue came in at $365.04 million. Its gross profit increased 6.4% year-over-year to $115.38 million.
Moreover, its adjusted EBITDA stood at $303.40 million, up 146.6% from the year-ago quarter. The company’s income for the period attributable to owners of the parent and EPS stood at $130.70 million and $0.81, up 977.3% and 976.7% year-over-year, respectively.
Analysts expect CAAP’s EPS for the quarter ended March 31, 2024, to increase 55.4% year-over-year to $0.31. Its revenue for fiscal 2024 is expected to increase 13.5% year-over-year to $1.59 billion.
It surpassed the consensus EPS estimates in three of the trailing four quarters. Shares of CAAP have gained 68.4% over the past year to close the last trading session at $17.09.
It’s no surprise that CAAP has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
It has an A grade for Sentiment and a B for Momentum and Quality. It is ranked #2 in the Airlines industry. Beyond what is stated above, we’ve also rated CAAP for Growth, Value, and Stability. Get all CAAP ratings here.
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ICAGY shares were trading at $4.30 per share on Friday morning, down $0.05 (-1.15%). Year-to-date, ICAGY has gained 10.82%, versus a 8.61% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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