With airlines diligently curbing pandemic-induced losses in 2022, the airline industry is positioned to soar back to profitability this year, driven by pent-up travel demand worldwide. To that end, it seems wise to consider investing in robust airline stocks Deutsche Lufthansa AG (DLAKY), Air Canada (ACDVF), and Air France-KLM SA (AFLYY) now.
Let’s understand this in detail.
The pandemic dealt a harsh blow to the airline industry, resulting in significant financial losses stemming from decreased travel. In 2020, the sector flew only 1.8 billion passengers, with each traveler contributing to a loss of $76. This resulted in a net loss of $183 billion for the airlines between 2020 and 2022.
However, after three years, the industry has rebounded and is now in its strongest position since March 2020. This year presents a promising opportunity for industry-wide growth, thanks to pent-up travel demand. Travel patterns have shifted significantly, with more leisure travelers and business travel at around 80% of pre-pandemic levels.
According to the International Air Transport Association (IATA), the airline industry is projected to achieve net profits of $9.80 billion in 2023, surpassing the previous December 2022 forecast of $4.70 billion. Operating profits are also expected to improve significantly, reaching $22.40 billion, compared to the prior estimates of $3.20 billion.
Moreover, total revenues are anticipated to grow 9.7% year-over-year to $803 billion in 2023, marking the first time since 2019 that industry revenues will surpass the $800 billion threshold.
IATA’s Director General, Willie Walsh, said, “Airline financial performance in 2023 is beating expectations. Stronger profitability is supported by several positive developments. China lifted COVID-19 restrictions earlier in the year than anticipated. Cargo revenues remain above pre-pandemic levels even though volumes have not.”
As per a report by Research and Markets, the global market for airlines is projected to grow at a CAGR of 9.3% and reach $1.10 trillion by 2030. Meanwhile, investors’ interest in airline stocks is evident from the Dow Jones US Airlines Index’s 17.1% returns over the past month.
Against this backdrop, investing in quality Airline stocks DLAKY, ACDVF, and AFLYY could be wise for solid returns.
Let’s take a closer look at the fundamentals of these stocks.
Deutsche Lufthansa AG (DLAKY)
Headquartered in Cologne, Germany, DLAKY serves passengers across 100+ destinations in more than 50 countries. It also provides airfreight container management and e-commerce solutions for 300 destinations in 100 countries. Moreover, the company also offers maintenance and repair services.
On May 25, DLAKY and the Italian Ministry of Economy and Finance agreed on a minority stake in Italia Trasporto Aereo S.p.A. (ITA Airways). DLAKY will acquire a 41% stake in ITA Airways by investing €325 million ($361.96 million), with the option to purchase the remaining shares later.
This presents a significant growth opportunity for DLKAY and grants it broader access to the Italian aviation market.
Furthermore, on May 23, DLAKY purchased four ultra-modern Airbus A350-900 long-haul aircraft from Deucalion Aviation Limited. With 38 firm orders, DLAKY became the world’s third-largest customer for this highly efficient Airbus model. The expanding aircraft portfolio is expected to hold promising prospects for the company.
For the first quarter that ended March 31, 2023, DLAKY’s traffic revenue grew 48.8% from the year-ago value to €5.71 billion ($6.36 billion), while its total revenue increased 40.3% year-over-year to €7.02 billion ($7.81 billion). The company’s cash inflow from operating activities rose 5.7% from the prior year’s quarter to €1.58 billion ($1.76 billion).
In addition, as of March 31, 2023, DLAKY’s current assets came in at €16.71 billion ($18.61 billion), compared to €15.21 billion ($16.94 billion) as of March 31, 2022.
The consensus revenue estimate of $40.70 billion for the fiscal year (ending December 2023) reflects a 16.8% year-over-year improvement. Likewise, the consensus EPS estimate of $1.51 for the ongoing year indicates a 92.2% rise year-over-year. Moreover, the company surpassed the consensus revenue estimates in three of the trailing four quarters.
Shares of DLAKY have gained 73% over the past year to close the last trading session at $9.97.
DLAKY’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
DLAKY has an A grade for Growth and a B for Value and Momentum. It has ranked #6 in the 28-stock A-rated Airlines industry.
In addition to the POWR Ratings I’ve just highlighted, you can see DLAKY’s ratings for Stability, Quality, and Sentiment here.
Air Canada (ACDVF)
Based in Saint-Laurent, Canada, ACDVF operates domestic, transborder, and international airline services. It also provides air cargo services in around 50 countries. Additionally, the company develops, operates, markets, and distributes vacation travel packages.
On June 2, ACDVF launched two strategic non-stop routes connecting its Montreal global hub to Europe. ACDVF’s seasonal services from Montreal to Copenhagen complement its year-round services from Toronto.
This move benefits the airline by linking significant business cities in the international aerospace industry and establishing convenient links to France, enabling travelers from Toulouse to access various destinations via the Montreal hub.
Also, on May 19, the company announced its plans to begin non-stop, year-round service between Toronto and Yellowknife in December.
This new route would support tourism to the city and region while providing valuable benefits to business travelers by directly connecting Yellowknife to Canada's financial capital. This strategic move could boost ACDVF's revenue by attracting more passengers.
During the first quarter that ended March 31, 2023, ACDVF’s revenues increased 89.9% year-over-year to CAD 4.89 billion ($3.71 billion). Its net income for the period stood at CAD 4 million ($3.03 million), compared to a loss of CAD 974 million ($738.71 million) in the prior year’s quarter.
Furthermore, the company’s cash inflow from operating activities rose 291.6% year-over-year to CAD 1.44 billion ($1.09 billion). As of March 31, 2023, the company’s cash and cash equivalents came in at CAD 3.09 billion ($2.34 billion), compared to CAD 2.69 billion ($2.04 billion) as of December 31, 2022.
ACDVF’s revenue is expected to grow 5% year-over-year to $17.04 billion for the fiscal year ending December 2024. The consensus EPS estimate of $2.45 for the same period reflects a 36.6% rise year-over-year. Furthermore, the company surpassed the consensus revenue estimates in three of the trailing four quarters.
The stock has gained 14.7% over the past six months and 46.4% over the past year to close the last trading session at $18.83.
ACDVF’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
ACDVF has an A grade for Growth and a B for Value, Quality, and Momentum. It is ranked #4 out of 28 stocks within the Airlines industry.
Click here to access additional ACDVF ratings (Sentiment and Stability).
Air France-KLM SA (AFLYY)
Based in Paris, France, AFLYY provides passenger transportation. It also engages in cargo services, aeronautics maintenance, and other air transport-related activities. The company’s sub-groups, Air France and KLM, have the Flying Blue flyer program, allowing members to earn miles from airline and non-airline partner transactions.
On June 14, AFLYY's frequent flyer program, Flying Blue, partnered with Amazon (AMZN), offering its 20 million members an additional opportunity to earn Miles in their everyday activities. This collaboration would expand Flying Blue’s extensive range of member benefits, resulting in increased loyalty and engagement for the company.
On April 3, AFLYY and the CMA CGM Group announced the effective launch of their long-term air cargo partnership. This 10-year collaboration combines Air France-KLM Martinair Cargo, part of AFLYY, and CMA CGM Air Cargo, part of the CMA CGM Group. The alliance is expected to enhance AFLYY’s position in the air cargo industry, improving its customer service offerings.
For the first quarter that ended March 31, 2023, AFLYY’s revenue from ordinary activities increased 42.4% year-over-year to €6.33 billion ($7.05 billion). Its EBITDA grew 29.4% from the year-ago value to €286 million ($318.52 million). Also, cash inflow from operating activities rose 14.9% from the prior year’s period to $1.55 billion ($1.73 billion).
Analysts expect AFLYY’s revenue to increase 16.7% year-over-year to $32.94 billion for the fiscal year ending December 2023. Likewise, for the fiscal year 2024, the company’s revenue is expected to grow 2.3% from the prior year to $33.70 billion. Also, AFLYY topped the consensus revenue estimates in all four trailing quarters, which is impressive.
Shares of AFLYY have gained 18.6% over the past six months and 56.8% over the past year to close the last trading session at $1.85.
AFLYY’s robust outlook is apparent in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
AFLYY has an A grade for Value and a B for Quality, Growth, and Momentum. It is ranked #3 out of 28 stocks within the same industry.
Click here to access additional AFLYY ratings for Stability and Sentiment.
What To Do Next?
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DLAKY shares were trading at $9.99 per share on Thursday afternoon, up $0.03 (+0.25%). Year-to-date, DLAKY has gained 21.31%, versus a 18.24% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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