The airline industry is expanding due to strong demand. However, the industry may face macroeconomic challenges in the near future.

So, I think it could be wise to wait for a better entry point in American Airlines Group Inc. (AAL) and Delta Air Lines, Inc. (DAL), for reasons discussed throughout this article.

The International Air Transport Association (IATA) announced a significant increase in air travel demand for December 2023. Also, according to the International Air Transport Association (IATA), total traffic in 2023 (measured in revenue passenger kilometers or RPKs) increased 36.9% from 2022. Total traffic in December 2023 increased by 25.3% compared to December 2022, indicating a strong recovery in the aviation industry.

However, the aviation industry faces challenges in the US, such as price caps, shortages of technicians and pilots, talent retention issues, and spare part shortages in 2023. Additionally, the industry is also grappling with increasing competition from low-cost carriers and the rising costs of fuel. These challenges are forcing aviation companies to innovate and adapt in order to remain competitive in the market.

In addition, panelists at the Changi Aviation Summit said that the aviation industry in the post-pandemic era faces numerous challenges, including keeping airfares affordable, particularly during the festive season when profit margins are "razor-thin," as well as having adequate and committed employees.

Considering these conducive trends, let’s analyze the fundamentals of the two stocks from the Airlines industry, beginning with the second choice.

Stock #2: American Airlines Group Inc. (AAL)

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, D.C., as well as through partner gateways in London, Doha, Madrid, Seattle/Tacoma, Sydney, and Tokyo.

AAL’s trailing-12-month CAPEX / Sales of 4.92% is 65% higher than the industry average of 2.98%. Its trailing-12-month levered FCF margin of 2.84% is 55.9% lower than the industry average of 6.44%.

As of December 31, 2023, AAL’s cash stood at $578 million, compared to $440 million as of December 31, 2022. Also, its total liabilities and stockholders’ equity stood at $63.06 billion, compared to $64.72 billion for the same period.

However, AAL’s total operating revenues for the fourth quarter ended December 31, 2023, decreased marginally year-over-year to $13.06 billion. The company’s net income narrowed 97.6% year-over-year to $19 million.

Analysts expect AAL’s revenue to come in at $54.88 billion for the year ending December 2024, increase 4% year-over-year. Its EPS is expected to decline 5.2% year-over-year to $2.51 for the same period. It surpassed the EPS estimates in three of four trailing quarters. The stock has gained 20.1% over the past three months to close the last trading session at $14.64.

AAL’s POWR Ratings reflect this mixed outlook. The stock has an overall C rating, equating to Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

AAL also has a C grade for Sentiment, Momentum and Quality. It is ranked #14 out of 27 stocks in the Airlines industry. Click here for the additional POWR Ratings Growth, Value and Stability for AAL.

Stock #1: Delta Air Lines, Inc. (DAL)

DAL provides scheduled air transportation for passengers and cargo in the United States and internationally. The company operates through two segments: Airline and Refinery.

DAL’s trailing-12-month ROCE of 52.12% is 323.1% higher than the industry average of 12.32%. Its trailing-12-month levered FCF margin of 0.63% is 90.2% lower than the industry average of 6.44%.

For the fiscal fourth quarter that ended December 31, 2023, DAL’s operating revenue and net income increased 5.9% and 146% year-over-year to $14.22 billion and $2.04 billion, respectively.

However, as of December 31, 2023, its total current assets stood at $10.16 billion, compared to $13.01 billion as of December 31, 2022. Also, its total current liabilities stood at $26.48 billion, compared to $25.94 billion for the same period.

The consensus revenue estimate of $58.21 billion for the year ending December 2024, increased marginally year-over-year. Its EPS is expected to grow 3.9% year-over-year to $6.50 for the same period. It surpassed EPS estimates in three of four trailing quarters. DAL’s shares have gained 18.6% over the past nine months to close the last trading session at $40.12.

DAL has an overall C rating, equating to a Neutral in our POWR Ratings system. It has a C grade for Growth, Momentum and Quality. It is ranked #10 in the same industry.

Beyond what is stated above, we’ve also rated DAL for Sentiment, Value and Stability. Get all DAL ratings here.

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DAL shares were trading at $40.46 per share on Tuesday afternoon, up $0.34 (+0.85%). Year-to-date, DAL has gained 0.57%, versus a 4.24% rise in the benchmark S&P 500 index during the same period.

Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.

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