The airline industry is growing at a significant pace with growing passenger preference for air traveling, adoption of cutting-edge technology, growing leisure travel, and expanding economies. Also, widening aviation analytics operations enhances operational efficiency.
Given the industry tailwinds, fundamentally sound Airline stocks Qantas Airways Limited (QABSY), SkyWest, Inc. (SKYW), and Air Canada (ACDVF) could be ideal buys with rising travel demand.
According to the data released by the International Air Transport Association (IATA), total passenger demand in May, calculated in revenue passenger kilometers (RPKs), was up 10.7% compared to May 2023. Total capacity in available seat kilometers (ASK) increased 8.5% year-on-year.
With increased vaccination rates and relaxed travel restrictions, the United States is experiencing a rise in domestic flight bookings.
Further, recent trends like sustainable airline fuel, higher leisure and business travel demand, and back-end technological innovation like artificial intelligence-powered operations, the airlines market is flourishing. The global airline industry is expected to hit $1.19 trillion by 2033, growing at a CAGR of 6.3%.
Besides, with the rapid overall airline market growth, global aviation analytics market is also on the rise with its ability to continuously improve airline operations, assist in business decisions, and build workflows effectively and efficiently using data. The global aviation analytics market is poised to grow at CAGR of 14.2%, to reach $7.45 billion by 2032.
Given these encouraging trends, let’s look at the fundamentals of the three best Airlines, beginning with number 3.
Stock #3: Qantas Airways Limited (QABSY)
Headquartered in Mascot, Australia, offers air transportation services in Australia and internationally. The company operates in segments like Qantas Domestic; Qantas International; Jetstar Group; and Qantas Loyalty.
On June 27, QABSY and Jetstar launched direct flights to Vanuatu. They commenced operating up to 9 return flights each week between Australia and Vanuatu, with the new seats going on sale across both carriers.
The company is creating more than 150,000 new seats each year between Australia and Vanuatu, which will unlock a mix of all-inclusive travel on Qantas and great low fares with optional extras on Jetstar.
In terms of forward EV/Sales, QABSY is trading at 0.66x, 63.7% lower than the industry average of 1.81x. Likewise, the stock’s forward Price/Sales multiple of 0.45 is 69.3% lower than the industry average of 1.47. Further, its forward non-GAAP P/E of 7.45x is 60.3% lower than the industry average of 18.74x.
QABSY’s trailing-12-month EBIT margin of 11.85% is 16.8% higher than the respective industry average of 10.15%. Also, the stock’s trailing-12-month net income margin of 7.68% is 26.5% higher than the industry average of 6.07%.
For the half year that ended December 31, 2023, QABSY’s revenue grew 12.3% year-over-year to $11.13 billion, of which its Net Passenger revenue increased 14.5% from the year-ago value to $9.61 billion. The company’s underlying EBT came in at $1.34 billion for the quarter.
In addition, the company’s statutory profit for the period and EPS were $869 million and $0.51, respectively.
Analysts expect QABSY’s revenue for the fiscal year (ending June 2025) to increase 3.7% year-over-year to $15.45 billion, and its EPS is expected to grow 8.5% year-over-year to $3.09.
Shares of QABSY have surged 8.3% over the past month and 19.5% over the past six months to close the last trading session at $21.68.
QABSY’s solid outlook is reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a B grade for Value, and Stability. Within the Airlines industry, QABSY is ranked #9 out of 26 stocks.
Click here to access additional ratings of QABSY (Momentum, Growth, Sentiment and Quality).
Stock #2: SkyWest, Inc. (SKYW)
SKYW engages in the operation of a regional airline. It operates in SkyWest Airlines and SWC; and SkyWest Leasing segments. The company is also involved in leasing regional jet aircraft and spare engines to third parties, alongside the provision of on-demand charter, airport customer, and ground handling services.
On March 3, SKYW entered into a new flying agreement with United Airlines Holdings, Inc. (UAL) to place 20 partner-financed E175s under a four-year contract. The 20 E175s joined SKYW’s fleet throughout 2024. By the end of 2026, SKYW is expected to operate a total of 278 E175 aircraft, expanding and strengthening its strong position in the market.
SKYW’s forward non-GAAP P/E of 12.22x is 34.8% lower than the industry average of 18.74x. Further, the stock’s forward EV/EBITDA multiple of 6.35 is 43.3% lower than the industry average of 11.21. Likewise, its forward Price/Sales of 1.00x is lower than the industry average of 1.47x.
SKYW’s trailing-12-month EBITDA margin of 19.54% is 41.7% higher than the industry average of 13.79%. Similarly, the stock’s trailing-12-month levered FCF margin of 12.05% is considerably higher than the industry average of 6.41%.
During the first quarter that ended March 31, 2024, SKYW’s total operating revenues increased 16.2% year-over-year to $803.61 million. Its operating income was $99.51 million, compared to operating loss of $4.70 million during the prior year’s quarter. The company’s net income and EPS came in at $60.30 million, and $1.45 for the quarter, respectively.
In addition, the company’s cash and marketable securities and total assets stood at $821.16 million and $6.98 billion as of March 31, 2024.
Street expects SKYW’s revenue and EPS for the second quarter (ended June 2024) to increase 12.2% and 400% year-over-year to $814.40 million and $1.75, respectively. Furthermore, the company surpassed the consensus EPS estimates in each of the trailing four quarters.
SKYW’s stock has gained 66.5% over the past six months and 100.2% over the past year to close the last trading session at $83.69.
SKYW’s POWR Ratings reflect its bright prospects. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
SKYW has an A grade for Growth. The stock also has a B grade for Sentiment, and Quality. It is ranked #4 among 26 stocks in the same industry.
In addition to the POWR Ratings I’ve just highlighted, you can see SKYW’s ratings for Stability, Value, and Momentum here.
Stock #1: Air Canada (ACDVF)
Headquartered in Saint-Laurent, Canada, ACDVF provides domestic, U.S. transborder, and international airline services. It offers scheduled passenger services under the Air Canada Vacations and Air Canada Rouge brand names.
In terms of forward non-GAAP P/E, ACDVF is trading at 5.01x, 73.3% lower than the industry average of 18.74x. Further, the stock’s forward EV/Sales multiple of 0.47 is 74.2% lower than the industry average of 1.81. Likewise, its forward Price/Sales of 0.27x is 81.7% lower than the industry average of 1.47x.
ACDVF’s trailing-12-month gross profit margin and EBIT margin of 33.48% and 10.52% are favorably compared to the respective industry averages of 31.21% and 10.15%. Likewise, the stock’s trailing-12-month net income margin of 9.88% is 62.8% higher than the industry average of 6.07%.
During the first quarter ended March 31, 2024, ACDVF reported operating revenue of $11 billion. The company’s adjusted EBITDA of $453 million, indicates growth of 10.2% from the prior year’s quarter. Its net cash flows from operating activities and free cash flow grew 10.4% and 7% year-over-year to $1.59 billion and $1.06 billion, respectively.
Analysts expect ACDVF’s revenue for the fiscal year (ending December 2025) to increase 5.2% year-over-year to $17.68 billion, while its EPS is expected to grow 12.6% year-over-year to $2.83, respectively. Further, the company surpassed the consensus revenue estimates in all of the trailing four quarters.
Over the past month, the stock has plunged 1.9% to close the last trading session at $12.63.
ACDVF’s strong prospects are reflected in its POWR Ratings. The stock has an overall grade of B, translating to a Buy in our proprietary rating system.
ACDVF has an A grade for Value and Quality. It has ranked #3 among the 26 stocks within the Airlines industry.
To see the other ratings of ACDVF for Stability, Growth, Sentiment, and Momentum, click here.
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QABSY shares were trading at $21.61 per share on Friday afternoon, up $0.36 (+1.69%). Year-to-date, QABSY has gained 17.96%, versus a 19.18% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
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