The COVID-19 pandemic severely disrupted the airline industry, reducing the revenues and share prices of companies in this space dramatically. However, a steep decline in COVID-19 cases prompted people to travel again last year, which helped the industry rebound. Indeed, over the Presidents' Day weekend, U.S. airports saw record traffic, with the Transportation Security Administration inspecting roughly 8.4 million passengers.
While the escalating war between Ukraine and Russia has caused jet fuel prices to spike, making the cost of airline tickets even more expensive, pent-up travel demand globally with the economic rebound should drive the airline industry's growth. Furthermore, the global aviation market, which was valued at $26.21 billion in 2021, is projected to reach $36.46 billion in 2028, registering a 4.8% CAGR.
Given this backdrop, Wall Street Analysts expect the shares of fundamentally sound airlines Frontier Group Holdings, Inc. (ULCC), Spirit Airlines, Inc. (SAVE), and SkyWest, Inc. (SKYW) to rally more than 60% in price in the coming months.
Frontier Group Holdings, Inc. (ULCC)
ULCC is a low-fare airline company in Denver, Colo., that provides air transportation for passengers. It serves approximately 120 airports throughout the United States and international destinations in America. It also provides services through direct distribution channels, including its website, mobile app, and call center.
Last month, Spirit Airlines, Inc. (SAVE) and ULCC, the parent company of Frontier Airlines, Inc, agreed to merge. The companies will integrate and create America’s most competitive ultra-low fare airline. The merger is expected to change the industry to the benefit of consumers by bringing more ultra-low fares to more travelers in more destinations across the United States, Latin America, and the Caribbean.
ULCC’s revenue increased 128.1% year-over-year to $609.00 million in the fourth quarter, ended Dec. 31, 2021. Frontier ended 2021 with a fleet of 110 aircraft, which is 6% higher than the prior-year period, while its unrestricted cash and cash equivalent stood at $918.00 million for the fourth quarter, ending Dec. 31, 2021.
Analysts expect ULCC’S revenue to increase 122.1% year-over-year to $601.95 million for the first quarter, ending March 31, 2022. The consensus EPS estimate is expected to increase 433.5% year-over-year to $1.49.
Among the seven Wall Street analysts that rated the stock, six rated it Buy, and one rated it Hold. The $19.33 12-month median price target indicates an 88.8% potential upside. The price targets range from a low of $18.00 to a high of $21.00. The stock closed its last trading session at $10.24.
Spirit Airlines, Inc. (SAVE)
SAVE provides airline services and serves 85 destinations in 16 countries in the United States, Latin America, and the Caribbean. The Miramar, Fla.-based company had a fleet of 173 Airbus single-aisle aircraft as of Dec. 31, 2021. It sells tickets through its call centers and airport ticket counters, and online through spirit.com.
SAVE announced two daily nonstop flights from Monterrey International Airport (MTY) to George Bush Intercontinental Airport (IAH) and Austin-Bergstrom International Airport (AUS), starting in June 2022. This new MTY service expands inland and to popular beach destinations, emphasizing connecting friends and relatives with affordable flights. The only nonstop flight between the two cities will be provided by Spirit’s Austin service, which will offer an important air link between major cities.
In the fourth quarter, ended Dec. 31, 2021, SAVE’s total operating revenue increased 98.1% year-over-year to $987.56 million. Its adjusted EBITDA came in at $14.90 million compared to a $91.10 million loss in the previous year’s quarter. SAVE took delivery of five new A320neo aircraft during the fourth quarter of 2021. The company ended the year with 173 aircraft in its fleet.
SAVE’s revenue is expected to increase 109.5% year-over-year to $966.54 million in the first-quarter ending March 31,2022.
Among the 10 Wall Street analysts that rated the stock, four rated it Buy, and six rated it Hold. Closing its last trading session at $19.57, the 12-month median price target of $32.38 indicates a 65.5% potential upside. The price targets range from a low of $25.00 to a high of $40.00.
SkyWest, Inc. (SKYW)
SKYW in St. George, Utah, operates a regional airline in the United States through its subsidiaries, and has two operational segments: SkyWest Airlines and SkyWest Leasing. It also leases regional jet aircraft and spare engines to third parties.
Last December, SKYW and Eve Air Mobility (Eve), an Embraer company, announced a Memorandum of Understanding and non-binding Letter of Intent for SKYW to purchase 100 of Eve's electric vertical takeoff and landing aircraft (eVTOL). This partnership emphasizes the company’s building of a network of deployment throughout the United States.
During the fourth quarter, ended Dec. 31, 2021, SKYW's total operating revenue increased 31.8% year-over-year to $777.16 million. Its operating income amounted to $32.95 million compared to a $27.67 million operating loss in the prior-year period. SKYW reported $4.33 million in net income compared to a $46.45 million net loss in the fourth quarter of 2021. Its EPS amounted to $0.09 compared to a $0.93 loss per share in the same period last year.
The analyst expects SKYW's EPS to increase substantially to $2.82 in its fiscal year 2023, while its revenue is expected to grow 30.9% year-over-year to 699.84 million in the first quarter, ending March 31, 2022.
Among the five Wall Street analysts that rated the stock, one rated it Buy, and four rated it Hold. The 12-month median price target of $41.80 indicates a 66.4% potential upside. The price targets range from a low of $35.00 to a high of $48.00. The stock closed the last trading session at $25.12.
ULCC shares were trading at $11.29 per share on Tuesday morning, up $1.05 (+10.25%). Year-to-date, ULCC has declined -16.80%, versus a -11.41% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
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