The industry kicked off the year with strong passenger demand, as IATA noted a 13.8% rise in global passenger demand for March 2024 over last year, with international demand up 18.9% and domestic demand up 6.6%. This growth is fueled by robust travel demand, especially with the upcoming summer travel season, highlighting the need for better supply chain management and operational efficiency.
In February 2024, IATA reported a robust 11.9% year-on-year growth in global air cargo demand, attributed to increased manufacturing output, better export orders, and positive inflation trends, highlighting air cargo's resilience amid economic uncertainties.
Despite aviation's sustainability challenges and focus on economic benefits versus environmental costs and alternative fuels, companies prioritize critical improvements in safety, health, security, and efficiency for passenger and operational safety, advancing the industry overall.
Furthermore, analysts expect that global air travel demand is on track for recovery in 2023, nearing pre-pandemic levels. In April 2024, U.S. travel agencies saw a 4% rise in air ticket sales, fueled by robust domestic demand and increased ancillary sales, highlighting the industry's resilience and appeal across business and leisure sectors.
Given this backdrop, let’s compare two airlines stocks, American Airlines Group Inc. (AAL) and Delta Air Lines, Inc. (DAL), to understand why DAL is the stock to buy this for value.
The Case for American Airlines Group Inc. Stock
American Airlines Group Inc. (AAL) operates as a network air carrier. The company provides scheduled air transportation services for passengers and cargo through its hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix, and Washington. It operates a mainline fleet of 965 aircraft.
AAL’s stock has declined 3.4% over the past nine months to close the last trading session at $14.90. However, it has gained 22.3% over the past six months.
AAL’s revenue grew at a CAGR of 60.6% over the past three years. However, its Tang Book Value decreased at a CAGR of 2.1% over the past three years.
In terms of forward EV/EBIT, AAL is trading at 10.89x, 32.5% lower than the industry average of 16.14x. Similarly, the stock’s forward EV/EBITDA of 5.77x is 49.3% lower than the industry average of 11.37x.
In terms of the trailing-12-month Capex / Sales, AAL’s 5.48% is 88.6% higher than the 2.91% industry average. Its 0.81x trailing-12-month asset turnover ratio is 3.3% higher than the 0.78x industry average. However, the stock’s 25.3% trailing-12-month gross profit margin is 19.5% lower than the 31.46% industry average.
For the first quarter, which ended March 31, 2024, AAL’s total operating revenues rose 3.1% from the year-ago value to $12.57 billion. The company reported a net loss and loss per common share of $312 million and $0.48, respectively.
Moreover, AAL’s revenue per passenger miles rose 10.5% year-over-year to 57.47 billion. Also, its available seat miles (ASM) increased 8.5% over the prior-year quarter to 70.52 billion.
For the quarter ending June 30, 2024, AAL’s revenue is expected to increase 4.7% year-over-year to $14.72 billion. Its EPS for the same quarter is expected to decrease 32.5% year-over-year to $1.30. It surpassed the Street EPS estimates in three of the trailing four quarters.
AAL’s stock is trading above its 50-day and 200-day moving averages of $14.24 and $13.80, respectively.
AAL’s POWR Ratings reflect this uncertain outlook. It has an overall rating of C, translating to Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a C grade for Quality. Within the Airlines industry, AAL is ranked #16 out of 26 stocks. To see AAL’s rating for Growth, Momentum, Stability, and Sentiment, click here
The Case for Delta Air Lines, Inc. Stock
Delta Air Lines, Inc. (DAL) provides scheduled air transportation for passengers and cargo internationally. The company operates through two segments, Airline and Refinery.
DAL’s stock has gained 56.4% over the past year to close the last trading session at $52.93.
DAL’s revenue grew at a CAGR of 67.1% over the past three years.
In terms of forward non-GAAP P/E, DAL is trading at 7.95x, 58.4% lower than the industry average of 19.12x. Likewise, its forward Price/Sales is trading at 0.56x, 62.7% lower than the 1.51x industry average.
In terms of the trailing-12-month net income margin, DAL’s 8.48% is 41.3% higher than the 6% industry average. Its 57.54% trailing-12-month Return on Common Equity is 368.3% higher than the 12.29% industry average. On the other hand, the stock’s 22.22% trailing-12-month gross profit margin is 29.4% lower than the 31.46% industry average.
For the fiscal first quarter that ended on March 31, 2024, DAL’s total operating revenues increased 7.8% year-over-year to $13.75 billion, while its adjusted operating income rose 17.2% year-over-year to $640 million.
For the same quarter, its adjusted net income and adjusted earnings per share stood at $288 million and $0.45, representing an increase of 76.7% and 80% over the prior-year quarter, respectively.
Street expects DAL’s revenue for the quarter ending June 30, 2024, to increase 3.2% to $16.08 billion. Its EPS for the quarter ending September 30, 2024, is expected to increase 5.3% year-over-year to $2.14. It surpassed the revenue estimates in each of the trailing four quarters.
DAL’s stock is trading above its 50-day and 200-day moving averages of $47.80 and $41.13, respectively.
DAL’s POWR Ratings reflect a mixed outlook. It has an overall rating of C, which translates to a Neutral in our proprietary rating system.
It has a C grade for Growth, Value, Stability, and Quality. Within the same industry, it is ranked #10. In total, we rate DAL on eight different levels. In addition to what we stated above, we have also rated DAL for Momentum, and Sentiment. Get all the DAL ratings here.
AAL vs. DAL: Which is the Ultimate Travel Stock to Buy for Value?
The airline industry is poised for growth due to high demand for air travel and strong consumer spending. Air traffic is expected to surpass pre-pandemic levels by mid-year. Airlines are embracing digital innovations for smarter travel experiences, boosting growth potential. AAL and DAL seem well-prepared to benefit from these promising industry trends.
Given the mixed outlook for AAL and DAL, DAL's discounted valuation, solid financial position, strong profitability, impressive price performance, and positive analyst estimates position it as a potentially superior investment for value over AAL.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Airlines industry here.
What To Do Next?
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DAL shares were trading at $52.87 per share on Friday afternoon, up $0.36 (+0.69%). Year-to-date, DAL has gained 31.98%, versus a 11.60% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
Ultimate Travel Stock to Buy For Value: American Airlines (AAL) vs. Delta Air Lines (DAL) StockNews.com
