As the world economy continues to recover from past downturns, air travel demand is increasing, boosting the prospects of the overall travel industry. Amid this backdrop, investors could consider adding travel stocks Air Canada (ACDVF), Cathay Pacific Airways Limited (CPCAY), International Consolidated Airlines Group, S.A. (ICAGY), and Deutsche Lufthansa AG (DLAKY) for December gains.
The global airline industry market is projected to grow at a CAGR of 25.5% until 2027. The airline sector is expected to grow in the next few years, owing to rising disposable income, rapidly growing middle class, and increased travel demand.
According to the World Travel & Tourism Council's (WTTC) Travel & Tourism Economic Impact 2023 global trends report, the U.S. Travel & Tourism sector’s GDP contribution grew by 16.9% to $2 trillion in 2022. Also, WTTC predicts that the sector’s GDP contribution will be $2.2 trillion in 2023, with 17.4 million jobs. This impressive growth was fuelled by a strong resurgence in demand from international visitors.
Additionally, surging air travelers in the United States is driving demand for airline A-la-carte services, as passengers seek to personalize their travel experience. A variety of services, including in-flight entertainment and connectivity options, the sale of in-flight food and beverages, and the availability of better seats at an additional cost, helps to improve the passenger travel experience.
The global airline A-la-carte services market is expected to grow at a CAGR of 15.9% until 2033.
Given the industry tailwinds, it’s time to examine the fundamentals of the top four stocks in the Airlines industry, starting with the fourth in line.
Stock #4: Air Canada (ACDVF)
Headquartered in Saint-Laurent, Canada, ACDVF offers domestic, U.S. transborder, and international airline services under the brand names Air Canada Vacations and Air Canada Rouge. It directly provides scheduled service and air freight lift to more than 180 airports across six continents.
On December 1, 2023, ACDVF introduced a new feature to the Air Canada mobile app to enable customers traveling within Canada to track the progress of their baggage and mobility aid in real time at key points as it moves with them throughout their journey. The new tracking feature was designed to provide travellers with added confidence and improve the overall customer experience through greater convenience.
On November 14, 2023, ACDVF announced it was strategically boosting its Asia-Pacific network capacity beginning mid-December through to the end of next summer 2024.
ACDVF’s trailing-12-month gross profit margin of 33.30% is 10% higher than the industry average of 30.28%. Its trailing-12-month CAPEX / Sales of 7.38% is 147.6% higher than the industry average of 2.98%.
During the fiscal third quarter that ended on September 30, 2023, ACDVF’s total revenues increased 19.2% year-over-year to CAD6.34 billion ($4.66 billion). Its net income came in at CAD1.25 billion ($ 919.24 million), compared to a net loss of CAD508 million ($373.58 million) for the year-ago quarter. Its net income per share came in at CAD3.08 as compared to negative CAD1.42 in the year ago quarter.
Analysts expect ACDVF’s revenue to increase 30.5% year-over-year to $16.03 billion for the year ending December 2023. Its EPS is expected to be $3.39 for the same year. Also, the company has surpassed revenue estimates in each of the trailing four quarters, which is impressive.
Over the past month, the stock has gained 5.9% to close the last trading session at $13.90.
ACDVF’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Value and Quality and a B in Growth. Within the Airlines industry, it is ranked #2 out of 28 stocks.
In addition to the POWR Ratings we’ve stated above, one can access ACDVF’s ratings for Momentum, Stability, and Sentiment here.
Stock #3: Cathay Pacific Airways Limited (CPCAY)
Headquartered in Lantau Island, Hong Kong, CPCAY, with its subsidiaries, operates as a carrier of international passengers and air cargo. The company conducts airline operations principally to and from Hong Kong.
CPCAY’s trailing-12-month levered FCF margin of 38.59% is 545.1% higher than the industry average of 5.98%. Its trailing-12-month EBIT margin of 15.03% is 55.2% higher than the 9.68% industry average.
CPCAY’s total revenue for the first half that ended June 30, 2023, rose 135% year-over-year to HK$43.59 billion ($5.58 billion). Its operating profit came in at HK$8.77 billion ($1.12 billion), compared to an operating loss of HK$1.25 billion ($160 million) for the same period. Also, its net income came in at HK$4.27 billion ($546.56 million), compared to a net loss of HK$5 billion ($640 million).
Street expects CPCAY’s revenue to increase 85% year-over-year to $12.03 billion for the year ending December 2023.
Over the past six months, the company’s stock has gained 5.9% to close the last trading session at $4.93.
CPCAY’s POWR Ratings reflect this promising outlook. It has an overall rating of A, which indicates a Strong Buy in our proprietary rating system.
CPCAY has an A grade for Growth and a B in Stability, Sentiment, and Quality. Out of the 28 stocks in the same industry, it is ranked first.
To see the other ratings of CPCAY for Value and Momentum, click here.
Stock #2: International Consolidated Airlines Group, S.A. (ICAGY)
Headquartered in Harmondsworth, the United Kingdom, ICAGY is a multinational airline group providing passenger and cargo services globally through brands like British Airways and Iberia. It also engages in aircraft leasing, maintenance, and airport services, operating a fleet of 558 aircraft.
On October 24, ICAGY’s cargo division, IAG Cargo announced an expanded 2023-2024 winter schedule with increased services from London, Madrid, and Dublin to key global destinations, including additional flights to Cape Town, Accra, Doha, and Miami. London Gatwick restarts services to Cape Town and Costa Rica, Dublin resumes flights to Miami, and Barcelona sees extra services to Buenos Aires.
The move aims to enhance capacity and support international trade during the holiday season.
On September 21, ICAGY added Cincinnati as an approved Constant Climate station in the United States, bringing the total to 21. The station facilitates the transport of time-sensitive pharmaceuticals between Cincinnati and London Heathrow, supporting global pharmaceutical logistics with a 45% increase in transported volume during H1 2023.
ICAGY’s trailing-12-month ROCE of 8.79% is 27.8% higher than the industry average of 6.87%. Its trailing-12-month CAPEX/Sales of 11.85% is 297.4% higher than the 2.98% industry average.
For the nine months ended September 30, 2023, ICAGY’s total revenue and operating profit grew 33.3% and significantly year-over-year to €22.23 billion ($24.42 billion) and €3.01 billion ($3.30 billion), respectively. The company’s adjusted profit and EPS increased significantly from the prior year’s quarter to €2.15 million ($2.37 billion) and €40.7, respectively.
As of September 30, ICAGY had €5.53 billion ($6.07 billion) in EBITDA, compared to €3.35 billion ($3.68 billion) as of December 31, 2022.
Analysts expect ICAGY’s revenue and EPS to grow 14.3% and 21.5% year-over-year to $7.70 billion and $0.05 for the fourth quarter ending December 2023, respectively. The company surpassed the EPS estimates in each of the trailing four quarters.
ICAGY’s shares have gained 22.8% over the past year and 34.6% year-to-date to close the last trading session at $3.93.
ICAGY’s robust prospects are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has a B grade for Value. Within the Airlines industry, it is ranked #7.
In addition to the POWR Ratings we’ve stated above, we also have ICAGY’s ratings for Growth, Momentum, Stability, Sentiment, and Quality. Get all ICAGY ratings here.
Stock #1: Deutsche Lufthansa AG (DLAKY)
Based in Cologne, Germany, DLAKY is a global aviation company based in Germany, operating in passenger services, airfreight logistics, maintenance, repair, overhaul (MRO) services, and catering. The company provides comprehensive aviation solutions internationally.
On November 9, DLAKY and TATA announced a partnership for India’s first bulk Sustainable Aviation Fuel (SAF) deal. Tata plans annual SAF investments, aligning with its Net Zero by 2035 goal. DLAKY produces SAF from biogenic residues, aiming to reduce CO2 emissions by up to 80%.
The collaboration underscores their commitment to sustainable air travel and integrating environmental principles into operations.
DLAKY’s trailing-12-month ROCE of 19.64% is 59.7% higher than the industry average of 12.30%. Its trailing-12-month CAPEX/Sales of 9.05% is 203.7% higher than the 2.98% industry average.
For the third quarter ended September 29, 2023, DLAKY generated total revenue and net profit of €10.28 billion ($11.29 billion) and €1.19 billion ($1.31 billion), up 7.7% and 47.3% from the previous year’s quarter, respectively. The company’s adjusted EBIT grew 30.6% year-over-year to €1.47 billion ($1.61 billion). Moreover, its adjusted free cash flow increased 44.4% from the prior-year quarter to €592 million ($650.28 million).
DLAKY’s revenue and EPS are expected to grow 12.3% and 128.3% year-over-year to $39.14 billion and $1.60 for the fiscal year ending December 2023, respectively.
Shares of DLAKY increased 13.6% over the past year and 14.5% over the past month to close the last trading session at $9.10.
It’s no surprise that DLAKY has an overall B rating, equating to a Buy in our POWR Ratings system.
It has a B grade for Growth and Value. It is ranked #6 within the same industry.
Beyond what is stated above, we’ve also rated DLAKY for Stability, Sentiment, Quality, and Momentum. Get all DLAKY ratings here.
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DLAKY shares were trading at $9.04 per share on Friday morning, down $0.06 (-0.66%). Year-to-date, DLAKY has gained 9.78%, versus a 21.36% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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