The airline sector is growing thanks to technological advancements and robust demand. So, quality airline stocks Delta Air Lines, Inc. (DAL), United Airlines Holdings, Inc. (UAL), Air Canada (ACDVF), and Air France-KLM SA (AFLYY) might be solid additions to one’s watchlist.
One of the primary drivers of the airline industry’s growth is the expected rise in air passengers. Air travel encompasses passenger and freight transportation, significantly contributing to a region's socio-economic development and sustainability.
The International Air Transport Association (IATA), a Canadian trade association of airlines worldwide, estimates that the number of air passengers will reach 4 billion by 2024. Also, as per The Business Research Company’s Airlines Global Market Report 2023, the Global Airline market will reach $708.40 billion by 2027, expanding at a CAGR of 8%.
Moreover, the booming connected aircraft market is a powerful growth driver for the airline industry. It provides vital data for optimizing flight routes, maintenance planning, and safety, enhancing the industry's efficiency and growth prospects. The connected aircraft market is expected to grow at a CAGR of 10.6% until 2028, reaching $16.50 billion.
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.
Let’s discuss the stocks mentioned above in detail:
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.
On August 15, 2023, 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 DAL’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. The company plans to drive its growth and profitability by offering an improved booking experience with several other benefits.
DAL pays $0.40 annually as dividends which translates to a yield of 0.96% at the current price. Its four-year average dividend yield is 1.13%.
In terms of forward non-GAAP P/E, DAL is currently trading at 6.20x, 64.6% lower than the industry average of 17.57x. The stock’s forward EV/EBITDA of 5.28x is 52.5% lower than the industry average of 11.11x.
For the fiscal quarter 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 quarter to $2.49 billion. Its income before income taxes was $2.32 billion, up 124.3% year-over-year. Additionally, the company’s EPS came in at $2.84, an increase of 146.9% year-over-year.
Analysts expect DAL’s EPS for the fiscal year 2023 to increase 109.2% year-over-year to $6.69. Its revenue estimate of $57.13 billion for the same year indicates a 13% rise year-over-year. Also, the company has surpassed the consensus revenue estimates in each of the trailing four quarters, which is impressive.
DAL’s stock has gained 26.3% year-to-date to close the last trading session at $41.49.
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.
United Airlines Holdings, Inc. (UAL)
UAL is a global air transportation services provider transporting people and cargo through its mainline and regional fleets. It also offers catering, ground handling, training, and maintenance services for third parties.
On July 25, UAL claimed that through its support from various startups, it increased its investment power to nearly $200 million and added eight new corporate partners, five months after its initial launch to increase the supply of Sustainable Aviation Fuel (SAF).
By scaling the supply of SAF, the company can reduce its carbon footprint and demonstrate its commitment to sustainability. Additionally, UAL’s efforts to increase its investment power could lead to new business opportunities and partnerships in the future.
On July 21, UAL revealed an investment in Electric Power Systems, a company producing battery technology that may be used for a broad suite of aerospace applications. This alliance should enable UAL to use EPS’s module technology to help electrify and decarbonize its operations.
In terms of forward non-GAAP P/E, UAL is currently trading at 4.47x, 74.4% lower than the industry average of 17.49x. The stock’s forward EV/EBITDA of 3.89x is 65.6% lower than the industry average of 11.11x.
In the second quarter (ended June 30, 2023), UAL’s total operating revenues increased 17.1% year-over-year to $14.18 billion, while its adjusted operating income grew 140% from the year-ago value to $2.38 billion.
The company’s non-GAAP net income and EPS came in at $1.67 billion and $5.03, registering 253.9% and 251.7% improvements year-over-year, respectively. UAL’s adjusted EBITDA increased 89% year-over-year to $3.13 billion.
Street expects UAL’s revenue to increase 11.6% year-over-year in the fiscal third quarter (ending September 2023) to $14.37 billion. Its EPS for the current quarter is expected to improve 44.9% year-over-year to $4.07. Moreover, it surpassed the EPS estimates in each of the trailing four quarters.
The stock has gained 30.2% year-to-date and 25.7% over the past year to close the last trading session at $49.10.
It is no surprise that UAL has an overall rating of B, which translates to a Buy in our POWR Ratings system.
The stock has a B grade for Value. It is ranked #12 in the same industry.
Access additional UAL grades for Growth, Momentum, Stability, Sentiment, and Quality here.
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 July 11, 2023, ACDVF announced fresh new features to its products and services, adding even more comfort and convenience to its onboard travel experience. The upgrades include expanded in-flight food and beverage offerings to suit a variety of needs and tastes, more family-friendly options in the airline's award-winning in-flight entertainment library, as well as additional advances to the Air Canada App.
ACDVF’s forward EV/EBITDA of 3.68x is 66.9% lower than the industry average of 11.11x. Its forward P/S of 0.38x is 72.2% lower than the industry average of 1.36x.
During the fiscal second quarter that ended on June 30, 2023, ACDVF’s operating revenues increased 36.3% year-over-year to CAD5.43 billion ($4 billion). Its adjusted EBITDA increased 692.2% year-over-year to CAD1.22 billion ($900.14 million), while its net income came in at CAD838 million ($618.30 million), compared to a net loss of CAD386 million ($284.80 million) for the year-ago quarter.
Analysts expect ACDVF’s revenue to increase 29.4% year-over-year to $15.89 billion for the fiscal year 2023. Its EPS is expected to come in at $2.85 for the same year. Also, it has surpassed revenue estimates in each of the trailing four quarters.
Over the past nine months, the stock has gained 20.8% to close the last trading session at $16.74.
ACDVF’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has an A grade for Growth and a B in Quality and Value. Within the same industry, it is ranked #2.
Beyond what is stated above, we’ve also rated ACDVF for Stability, Sentiment, and Momentum. Get all ACDVF ratings here.
Air France-KLM SA (AFLYY)
Based in Paris, France, AFLYY provides passenger transportation. It also engages in cargo services, aeronautics maintenance, and other air transport-related activities. The company’s sub-groups, Air France and KLM, have the Flying Blue flyer program, allowing members to earn miles from airline and non-airline partner transactions.
AFLYY forward EV/EBITDA of 2.35x is 78.8% lower than the industry average of 11.11x. Its forward P/S of 0.12x is 91.1% lower than the industry average of 1.36x.
For the fiscal second quarter that ended June 30, 2023, AFLYY’s total revenues increased 13.3% year-over-year to €6.52 billion ($7.09 billion). Its EBITDA grew 42.6% from the year-ago value to €1.33 billion ($1.45 billion). Also, net income for the quarter rose 88.3% year-over-year to €612 million ($665 million).
Street expects AFLYY’s revenue to increase 14% year-over-year to $32.17 billion for the fiscal year 2023. Its EPS is expected to be $0.38 for the same year. Also, AFLYY has topped the consensus revenue and EPS estimates in all four trailing quarters.
Shares of AFLYY have gained 12.9% year-to-date to close the last trading session at $1.54.
AFLYY’s robust prospect is reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
AFLYY has an A grade for Value and a B in Stability, Quality, and Growth. It is ranked #3 in the same industry.
Click here for AFLYY’s additional POWR Ratings (Momentum and Sentiment).
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DAL shares were trading at $41.30 per share on Monday morning, down $0.19 (-0.46%). Year-to-date, DAL has gained 25.95%, versus a 14.78% 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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