Despite ongoing uncertainties, the airline industry is well-positioned for robust growth and profitability this year and beyond, thanks to pent-up demand for air travel. Furthermore, the growing adoption of emerging technologies underscores the industry’s commitment to embracing innovation and shaping the future of airline operations.
Given the industry’s rosy growth prospects, investors could consider buying fundamentally sound airline stocks such as Delta Airlines, Inc. (DAL), Ryanair Holdings plc (RYAAY), and American Airlines Group Inc. (AAL) for solid returns.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the airline industry.
Despite ongoing economic and geopolitical uncertainties, pent-up demand, increased prioritization of travel spending, and the continued recovery of international travel are expected to drive the resurgence of air travel in 2023 and beyond.
The International Air Transport Association (IATA) announced a strengthening of airline industry profitability in an upgrade for its outlook of 2023. Airline industry net profits are projected to reach $9.80 billion in 2023, more than double the December forecast of $4.70 billion. Positive developments like China’s lifting COVID-19 restrictions support solid profitability.
Further, the industry’s total revenues are expected to increase 9.7% year-over-year to $803 billion, driven by a significant rebound in travel demand. Moreover, approximately 4.35 billion people are likely to travel this year, which is close to the 4.54 billion who flew in 2019.
According to a report by The Business Research Company, the global airlines market is expected to reach $708.40 billion by 2032, growing at a CAGR of 8%.
In addition, emerging technologies, such as blockchain, augmented reality and virtual reality (AR&VR), artificial intelligence (AI), robotics, the Internet of Things (IoT), and big data, are revolutionizing the flying experience for the airline industry. As per Global Market Insights, the airline technology integration market is poised to grow at a 10% CAGR from 2023 to 2032.
Given the industry’s promising prospects, quality airline stocks DAL, RYAAY, and AAL could be solid additions to your portfolio now.
Let’s take a closer look at the fundamentals of these stocks:
Delta Air Lines, Inc. (DAL)
DAL offers scheduled air transportation for passengers and cargo internationally. The company operates in two segments: Airline and Refinery. It sells its tickets via several distribution channels, such as delta.com and the Fly Delta app, online travel agencies, traditional brick and mortar, and other agencies. DAL operates through a fleet of nearly 1,250 aircrafts.
On August 15, DAL, along with investment firms Certares Management LLC and Knighthead Capital Management LLC, announced an expanded partnership with Wheels Up Experience Inc., a leading provider of on-demand private aviation, to accelerate the company’s business transformation.
The companies plan to provide a $500 million facility, including a $400 million term loan and $100 million liquidity facility, combining Delta’s aviation expertise, Certares’ travel focus, and Knighthead’s restructuring experience to support Wheels Up’s growth.
On July 10, Delta Vacations, a DAL company, announced that Delta SkyMiles Members could now enjoy enhanced benefits. Their miles would now be worth at least 15% more when applied to any Delta Vacations destination, offering increased vacation value.
Members could also earn more miles and MQDs when booking packages and use miles to cover vacation expenses. The company might drive its growth and profitability by offering an improved booking experience with several other benefits.
In terms of forward non-GAAP P/E, DAL is currently trading at 6.24x, 64.5% lower than the industry average of 17.57x. And the stock’s forward EV/EBITDA of 5.30x is 52.2% lower than the industry average of 11.08x. Also, its forward Price/Sales multiple of 0.47 is 65.5% lower than the industry average of 1.36.
For the three months that ended June 30, DAL’s operating revenue was $15.58 billion, an increase of 12.7% year-over-year. The company’s operating income grew 64% from the year-ago value to $2.49 billion. Its income before income taxes was $2.32 billion, up 124.3% year-over-year.
Additionally, the company’s net income rose 148.6% from the prior year’s quarter to $1.83 billion, and its EPS came in at $2.84, an increase of 146.9% year-over-year.
Analysts expect DAL’s EPS for the fiscal year (ending December 2023) to increase 109.2% year-over-year to $6.69. Likewise, the consensus revenue estimate of $57.13 billion for the same period indicates a 13% rise year-over-year. Also, the company has surpassed the consensus revenue estimates in each of the trailing four quarters.
DAL’s stock has gained 28.1% year-to-date and 21% over the previous year to close the last trading session at $41.78.
DAL’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
DAL has a B grade for Growth and Sentiment. It is ranked #10 out of 28 stocks in the B-rated Airlines industry.
In addition to the POWR Ratings we’ve stated above, we also have DAL’s ratings for Value, Quality, Stability, and Momentum. Get all DAL ratings here.
Ryanair Holdings plc (RYAAY)
Headquartered in Swords, Ireland, RYAAY offers scheduled-passenger services in Ireland, the United Kingdom, Italy, and internationally. Also, it provides various ancillary services like non-flight scheduled and internet-related services; and markets car hire, travel insurance, and accommodation services.
On August 8, RYAAY introduced a new convenience service at Manchester Airport, allowing passengers traveling on morning flights until 8:00 am to drop off their checked bags the previous evening (between 7:00 pm and 10:00 pm).
RYAAY’s Head of Communications, Jade Kirwan, said, “As Manchester’s No.1 airline, we’re delighted to launch our new ‘Twilight Bag Drop’ service for all our customers traveling from Manchester Airport this summer. This complimentary service will further improve our passengers’ overall travel experience and further reduce airport queuing times for those taking early morning flights.”
On May 9, RYAAY agreed to purchase 150 new Boeing 737-10 aircraft and took options on 150 more, making this the largest-ever order placed by an Irish company for US manufactured goods. The deal is worth $40 billion at list prices. The plans are expected to be delivered between 2017 and 2033.
The new order would allow RYAAY to deliver sustained traffic and tourism growth at lower fares and lower emissions per flight across European countries where the company continues to lead the post-Covid traffic.
In terms of forward non-GAAP P/E, RYAAY is currently trading at 11.14x, 37% lower than the industry average of 17.57x. Moreover, the stock’s forward EV/EBITDA and EV/EBIT multiples of 5.55 and 8.50 compare to the industry averages of 11.08 and 15.22, respectively.
RYAAY’s revenues for the fiscal 2024 first quarter that ended June 30, 2023, rose 40% year-over-year to €3.65 billion ($3.96 billion). Its profit after tax was €663 million ($721.01 million), an increase of 290% from the prior year’s corresponding period. The company’s profit for the period was €662.90 million ($720.90 million), up 253.6% year-over-year.
Furthermore, the company’s earnings per common share increased 252% year-over-year to €58.22.
The consensus revenue estimate of $14.35 billion for the fiscal year (ending March 2024) represents a 23.2% increase year-over-year. The consensus EPS estimate of $8.86 for the current year indicates a 30.8% improvement year-over-year. In addition, the company has surpassed the consensus EPS estimates in three of the trailing four quarters.
Over the past year, the stock has gained 32.1% and 32.5% year-to-date to close the last trading session at $98.70.
RYAAY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
RYAAY has an A grade for Sentiment and B grade for Growth and Quality. Out of the 28 stocks in the B-rated Airlines industry, it is ranked #9.
To see the other ratings of RYAAY for Momentum, Value, and Stability, click here.
American Airlines Group Inc. (AAL)
AAL is a network air carrier with global reach. The company offers scheduled air transportation services for passengers and cargo through its hubs. It operates a mainline fleet of more than 925 aircrafts.
In terms of forward non-GAAP, AAL is currently trading at 4.57x, 74% lower than the industry average of 17.57x. Also, the stock’s forward EV/Sales and Price/Sales multiples of 0.76 and 0.19 compare to the respective industry averages of 1.72 and 1.36.
For the second quarter that ended June 30, 2023, AAL’s operating revenue increased 4.7% year-over-year to $14.06 billion. Its non-GAAP operating income was $2.17 billion, an increase of 114.3% year-over-year. Also, the company’s non-GAAP income before income taxes grew 161.6% year-over-year to $1.80 billion.
Furthermore, the company’s non-GAAP net income grew 157.2% year-over-year to $1.37 billion, while its non-GAAP EPS increased 152.6% from the prior-year period to $1.92.
Analysts expect AAL’s revenue for the fiscal year (ending December 2023) to increase 7.9% year-over-year to $52.85 billion. The company’s EPS for the ongoing year is expected to grow 558.3% from the prior year to $3.29. Moreover, the company topped the consensus EPS estimates in all trailing four quarters, which is impressive.
Shares of AAL have increased 3.5% over the past three months and 18.1% year-to-date to close the last trading session at $15.05.
AAL’s strong prospects are reflected in its POWR Ratings. The stock has an overall B rating, translating to Buy in our proprietary rating system.
AAL has a B grade for Value and Quality. It is ranked #13 in the same industry.
Click here to see the other ratings of AAL for Momentum, Sentiment, Growth, and Stability.
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DAL shares fell $0.63 (-1.51%) in premarket trading Friday. Year-to-date, DAL has gained 26.22%, versus a 14.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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