The airline industry is anticipated to remain upbeat this year on the backs of soaring travel demand and technological advancements like Artificial Intelligence (AI) and Sustainable Aviation Fuel (SAF).
Therefore, investors could plug into profits by adding airline stocks SkyWest, Inc. (SKYW) and International Consolidated Airlines Group S.A. (ICAGY) to the portfolio, while it would be wise to watch Corporación América Airports S.A. (CAAP) now.
Last year, there was a notable global air travel demand recovery, with total traffic nearing the pre-pandemic demand levels. Total traffic rose 36.9% year-over-year, reaching 94.1% of the pre-pandemic levels globally. The International Air Transport Association (IATA) forecasts the global airline industry’s net profits to reach $25.70 billion in 2024 while operating profit could reach $49.30 billion.
The airline industry has integrated AI and digital technology to enhance customer experience at the airport and onboard. To improve communication with its customers, airlines have started predicting flight delays based on past performance by better utilizing AI in their operations.
The global aviation industry is further expanding due to factors like rising disposable incomes, declining jet fuel prices, and government aid. Consequently, the global airline market is expected to grow at a CAGR of 8.8%, reaching $794.61 billion by 2028.
In light of these encouraging trends, let's look at the fundamentals of the three Airlines stocks, starting with the weakest from the investment point of view.
Stock #3: Corporación América Airports S.A. (CAAP)
Headquartered in Luxembourg City, Luxembourg, CAAP acquires, develops, and operates airport concessions. It operates 53 airports in Latin America, Europe, and Eurasia.
On February 16, CAAP reported a 2% year-over-year increase in passenger traffic in January 2024, reaching 91.7% of January 2019 levels. Additionally, it reported its international passenger traffic to be 0.3% above pre-pandemic levels.
CAAP’s trailing-12-month ROCE and ROTC of 19.55% and 10.68% are 59.2% and 52.9% higher than the industry averages of 12.28% and 6.99%, respectively. However, the stock’s CAPEX/Sales of 0.68% is 77.2% lower than the industry average of 2.99%.
During the fiscal third quarter that ended September 30, 2023, CAAP’s revenue and gross profit increased 18.7% and 37.5% year-over-year to $469.54 million and $174.98 million, respectively.
Moreover, its adjusted EBITDA stood at 172.70 million, up 31.8% from the year-ago quarter. The company’s income for the period attributable to owners of the parent and EPS stood at $46.48 million and $0.29, respectively.
Street expects CAAP’s revenue and EPS for the fiscal year ending December 2024 to increase 9.6% and 10.9% year-over-year to $1.70 billion and $1.22, respectively. The company surpassed consensus EPS estimates in three of the trailing four quarters, which is impressive.
The stock has declined 9.6% year-to-date but gained 48.9% over the past year to close the last trading session at $14.52.
CAAP’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall C rating, equating to Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a C grade for Growth, Value, Stability, and Quality. Within the Airlines industry, it is ranked #9 out of 26 stocks.
To see additional POWR Ratings for Momentum and Sentiment for CAAP, click here.
Stock #2: SkyWest, Inc. (SKYW)
SKYW is a regional airline in the U.S., operating through two segments: SkyWest Airlines and SWC; and SkyWest Leasing. The company is also involved in leasing regional jet aircraft and spare engines to third parties; and provision of on-demand charter, airport customer, and ground handling services.
On March 3, SKYW announced a new flying agreement with United Airlines to place 20 partner-financed E175s under a four-year contract. The 20 E175s will join the SKYW fleet throughout 2024. This agreement is in addition to the previously announced 19 SkyWest-owned E175 agreement with United.
SKYW repurchased 1 million shares of common stock for $45 million during the fourth quarter of 2023. For the year ended December 31, 2023, SKYW repurchased 10.60 million shares of common stock for $289 million, which represented 21% of SKYW’s outstanding shares as of December 31, 2022. As of December 31, 2023, SKYW had $91 million of remaining availability under its current share repurchase program.
SKYW’s trailing-12-month CAPEX/Sales of 10.78% is 259.9% higher than the industry average of 2.99%. Its trailing-12-month EBITDA and levered FCF margins of 16.68% and 7.66% are 21.4% and 17.2% higher than the industry averages of 13.74% and 6.53%, respectively.
For the fiscal fourth quarter that ended December 31, 2023, SKYW’s total operating revenues increased 10.4% year-over-year to $751.79 million. Moreover, its operating income stood at $27.62 million, compared to an operating loss of $35.06 million in the year-ago quarter, respectively.
For the same quarter, its net income and earnings per share came at $17.52 million and $0.42, compared to a net loss and loss per share of $47.10 million and $0.93 in the prior-year quarter, respectively.
Street expects SKYW’s revenue for the fiscal first quarter ending March 2024 to increase 14.7% year-over-year to $793.72 million, while its EPS is expected to be $1.09. The company surpassed consensus EPS estimates in each of the trailing four quarters and consensus revenue estimates in three of the trailing four quarters.
The stock has gained 254.9% over the past year to close the last trading session at $67.64. Over the past nine months, it has gained 81.2%.
SKYW’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system.
SKYW has an A grade for Growth and a B for Quality. Within the same industry, it is ranked #8.
Click here for the additional POWR Ratings for SKYW (Value, Momentum, Stability, and Sentiment).
Stock #1: International Consolidated Airlines Group S.A. (ICAGY)
Headquartered in Harmondsworth, United Kingdom, ICAGY provides passenger and cargo transportation services in the United Kingdom, Spain, the U.S., and rest of the world. The company operates under the British Airways, Iberia, Vueling, Aer Lingus, and LEVEL brands.
ICAGY’s trailing-12-month CAPEX/Sales of 12.03% is 301.9% higher than the industry average of 2.99%. Its trailing-12-month EBITDA and net income margins of 15.06% and 9.01% are 9.6% and 52.1% higher than the industry averages of 13.74% and 5.93%, respectively.
For the fiscal fourth quarter that ended December 31, 2023, ICAGY’s total revenue and operating profit increased 13.1% and 5.2% year-over-year to €7.22 billion ($7.90 billion) and €502 million ($549.02 million), respectively. For the same quarter, its profit after tax stood at €504 million ($551.21 million), up 117.2% from the prior-year quarter.
For the fiscal year that ended December 31, 2023, its adjusted earnings per share before exceptional items and free cash flow increased 803.6% and 34.8% from the year-ago value to 50.60 cents and €1.32 billion ($1.44 billion), respectively.
Street expects ICAGY’s revenue for the fiscal year ending December 2024 to increase 6% year-over-year to $33.75 billion. Its EPS is expected to be $0.91 for the same year. The company surpassed the consensus revenue estimates in three of the trailing four quarters.
The stock has gained 13.2% over the past year to close the last trading session at $3.86. Over the past month, it has gained 10%.
ICAGY’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
ICAGY has an A grade for Value and a B for Stability. Within the same industry, it is ranked #7.
Beyond what we’ve stated above, we have also rated the stock for Growth, Momentum, Sentiment, and Quality. Get all ratings of ICAGY here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
ICAGY shares were trading at $3.82 per share on Thursday morning, down $0.04 (-1.05%). Year-to-date, ICAGY has declined -1.55%, versus a 8.06% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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