The airline industry this year and beyond is rapidly growing and evolving with significant advancements in electrification, hydrogen power, automation, and supersonic travel, all aimed at sustainability and enhanced passenger experiences.
Therefore, investors could consider investing in these three fundamentally sound airline stocks: Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (VLRS), Cathay Pacific Airways Limited (CPCAY), and Air Canada (ACDVF), which are well-placed to soar to new heights.
The airline industry showcased a strong recovery in 2023, with global passenger numbers surpassing pre-pandemic levels by the peak summer months. Looking ahead to 2024, the outlook remains cautiously positive, with robust revenue growth projected despite potential moderation in passenger numbers.
Besides, in January 2024, global airline industry revenue passenger-kilometers (RPK) increased by 16.6% year-on-year, reaching 99.6% of 2019 levels, with domestic RPK growing by 6.7% over pre-pandemic levels and international RPK equalling 95.7% of pre-pandemic levels, indicating a solid start to the year.
In addition, this year, the airline industry is projected to earn net profits of $25.70 billion on record revenues of $964 billion, with passenger revenues expected to reach $717 billion. Also, operating profits are anticipated to increase to $49.30 billion, representing a 21.1% growth year-over-year, while cargo volumes are forecasted to be 61 million tonnes.
Moreover, the U.S. Transportation Department has approved Chinese passenger airlines to increase their weekly round-trip flights to the U.S. to 50 from March 31, 2024, up from the current 35. This will return the market to nearly one-third of pre-pandemic levels, aiming to normalize it.
Furthermore, the global airline industry is growing due to rising travel demand, government support, and technological advancements, with significant growth expected in air freight services. The global airline industry market is projected to grow at a CAGR of 25.5% by 2027.
Considering these conducive trends, let’s discuss the fundamentals of three Airlines stock picks: VLRS, CPCAY, and ACDVF.
Stock #3: Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (VLRS)
Based in Mexico City, Mexico, VLRS is a leading air transportation provider operating domestically in Mexico and internationally. Offering a network of approximately 590 daily flights across various destinations, the company provides services for passengers, cargo, and mail.
On March 6, 2024, VLRS reported an 86% load factor, with a 13.7% decrease in ASM capacity and a 10.9% decrease in RPMs year-over-year in the last month. Despite a 15.2% decrease in passengers compared to February 2023, the company achieved a robust load factor exceeding the average for such a low-season month.
During the fourth quarter, which ended December 31, 2023, VLRS’ total operating revenues grew 9.6% year-over-year to $899 million. The company’s operating expenses decreased 3.3% from a year-ago quarter to $735 million. Its operating income rose 173.3% from the prior-year quarter to $164 million.
In addition, the company’s net income amounted to $112 million, compared to its previous year’s quarter’s net loss of $22 million.
For the fiscal year 2024, VLRS expects its CAPEX to be approximately $300 million.
The consensus EPS estimate of $0.49 for the current year indicates a 598.2% year-over-year rise. Further, analysts expect VLRS’ revenue and EPS for the fiscal year (ending December 2025) to increase 8.1% and 83.8% year-over-year to $3.22 billion and $0.90, respectively.
The stock has declined 3.2% intraday to close the last trading session at $7.33.
VLRS’ POWR Ratings reflect this positive outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.
The stock has a B grade for Growth, Value, Sentiment, and Quality. In the Airlines industry, VLRS is ranked #3 among 27 stocks.
To access additional ratings for VLRS’ Momentum and Stability, click here.
Stock #2: Cathay Pacific Airways Limited (CPCAY)
Headquartered in Lantau Island, Hong Kong, CPCAY is an international passenger and air cargo carrier. The company offers a range of services from airline operations to property investment and aircraft engineering, and serves destinations across the Americas, Europe, Asia, and beyond.
On January 4, CPCAY explored options for new mid-sized widebody aircraft to update its fleet, having issued a request for information from Airbus and Boeing. This evaluation aims to enhance both passenger and cargo operations, potentially replacing older mid-sized widebody jets in the fleet, which includes 43 A330s with an average age of nearly 15 years as of June 30, 2023.
On December 8, 2023, CPCAY placed an order for six Airbus A350 freighter aircraft, with deliveries expected to begin in 2027 and options for an additional 20 aircraft. The deal, worth $2.70 billion at list price, aims to bolster the airline's cargo capacity and global network, enhancing its sustainability goals with highly fuel-efficient, next-generation freighters.
CPCAY’s total revenue in the six months that ended June 30, 2023, rose 135% year-over-year to HK$43.59 billion ($5.57 billion). Its operating profit came in at HK$8.77 billion ($1.12 billion), compared to its year-ago period’s operating loss of HK$1.25 billion ($160.20 million).
Furthermore, the company’s profit for the period and EPS came in at HK$4.27 billion ($545.66 million) and HK$55.20, compared to a loss of HK$5 billion ($639.14 million) and HK$82.3 per share in the previous year’s period, respectively.
Street expects CPCAY’s revenue to grow 84.4% year-over-year to $11.99 billion for the fiscal year that ended December 2023. Similarly, the company’s revenue for the fiscal year 2024 is estimated to grow 18.1% year-over-year to $14.16 billion.
CPCAY’s stock has surged 12.6% over the past nine months to close the last trading session at $5.35. Also, the stock gained 1.1% intraday.
CPCAY’s POWR Ratings reflect its strong prospects. The stock has an overall B rating, translating to a Buy in our proprietary rating system.
The stock has an A grade for Growth and a B for Stability and Quality. Within the same industry, CPCAY is ranked #2 among 27 stocks.
Click here to see CPCAY’s ratings for Value, Momentum, and Sentiment.
Stock #1: Air Canada (ACDVF)
Headquartered in Saint-Laurent, Canada, ACDVF is a major airline offering domestic, U.S. transborder, and international services, including vacation travel packages and air cargo in about 50 countries. Operating under brands like Air Canada Vacations and Air Canada Rouge, the airline has a diverse fleet of 192 aircraft and manages travel loyalty programs.
On March 7, 2024, ACDVF unveiled a comprehensive upgrade to its menus with over 100 new seasonal recipes and an expanded snack and beverage selection, aiming to enhance the dining experience for customers while emphasizing comfort and convenience in travel.
On February 21, ACDVF partnered with The Landline Company to offer luxury motorcoach services connecting airports in Hamilton and Waterloo Region with Toronto Pearson. The multimodal option aims to provide seamless and sustainable travel, with passengers able to book single itineraries combining motorcoach service with ACDVF flights, beginning as a pilot project in May 2024.
In the fourth quarter, which ended December 31, 2023, ACDVF generated operating revenue of C$5.18 billion ($3.84 billion), up 10.6% year-over-year. The company reported adjusted EBITDA of C$521 million ($386.15 million), an increase of 33.9% from the prior year’s quarter. Its net cash flows from operating activities and free cash flow grew 52.2% and 109.1% year-over-year to C$985 million ($730.04 million) and C$669 million ($495.84 million), respectively.
The company anticipates adjusted EBITDA to range between $3.70 billion to $4.20 billion for the fiscal year 2024.
For the fiscal year ending December 2025, Street expects ACDVF’s revenue and EPS to grow 5.2% and 14% year-over-year to $17.75 billion and $3.15, respectively. Moreover, the company surpassed the revenue estimates in each of the trailing four quarters, which is promising.
ACDVF’s shares have decreased marginally intraday to close the last trading session at $13.33.
ACDVF’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Value and a B for Quality. Within the same industry, ACDVF is ranked first.
In addition to the POWR Ratings stated above, access ACDVF’s Growth, Momentum, Stability, and Sentiment ratings here.
What To Do Next?
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CPCAY shares were unchanged in premarket trading Friday. Year-to-date, CPCAY has gained 3.08%, versus a 8.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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