In this piece, I have evaluated two airline stocks, American Airlines Group Inc. (AAL) and JetBlue Airways Corporation (JBLU), to determine which is a better investment. While investors could consider waiting for a better entry point in AAL, JBLU is better avoided.
The International Air Transport Association (IATA) announced that global air travel demand continued its recovery in 2023, and total traffic edged closer to matching the pre-pandemic demand levels. Total traffic (measured in revenue passenger kilometers) in 2023 increased 36.9% compared to 2022. Globally, 2023 traffic was at 94.1% of the pre-pandemic levels.
International traffic last year rose 41.6% over the year-ago period, hitting 88.6% of 2019 levels, and domestic travel increased by 30.4%, surpassing 2019 levels by 3.9%. By the fourth quarter, traffic rebounded to 98.2% of 2019 levels, indicating a strong recovery towards the end of the year.
The industry has started the year strongly, with the IATA reporting that the global air cargo market total demand (cargo tonne-kilometers) rose by 18.4% compared to January 2023 (19.8% for international operations), marking the highest annual growth in cargo tonne-kilometers since the summer of 2021. The strong performance is primarily attributed to the thriving e-commerce sector.
Similarly, global passenger demand also started the year strong, as total demand (measured in revenue passenger kilometers) rose 16.6% in January. In addition, total capacity (measured in available seat kilometers) increased 14.1%, and the load factor was 79.9%, indicating an increase of 1.7 points. Meanwhile, domestic demand rose 10.4%.
IATA’s Director General Willie Walsh said, “2024 is off to a strong start despite economic and geopolitical uncertainties. As governments look to build prosperity in their economies in the busiest election year ever, it is critical that they see aviation as a catalyst for growth.
“Increased taxes and onerous regulation are a counterweight to prosperity. We will be looking to governments for policies that help aviation to reduce costs, improve efficiency and make progress towards net zero CO2 emissions by 2050,” he added.
AAL expects its first-quarter adjusted loss per share to be between $0.15 and $0.35. However, its full-year 2024 adjusted EPS is expected to be between $2.25 and $3.25.
On the other hand, JBLU expects its first-quarter revenues to decline between 5% and 9%, more than the 5.5% decline expected by Wall Street analysts. Also, capacity in the first quarter will be down as much as 6%. The company said it expects its 2024 capacity to be down in the low single digits, and its revenues are expected to remain flat year-over-year. Its adjusted operating margin is forecasted to achieve breakeven.
Also, JBLU revealed plans to defer $2.5 billion in spending on new aircraft until the end of the decade.
The Airports Council International (ACI) forecasts that the aviation sector will make a complete recovery from the impact of the pandemic by this year, with an estimated 9.4 billion passengers expected to travel. Earlier this year, the IATA forecasted that air travel demand is projected to double by 2040, growing at an annual rate of 3.4%.
Meanwhile, the aviation industry also faces the risk of an expected recession this year. This could lead to reduced air travel demand, higher airfares, and increased fuel costs. Airlines may be forced to reduce the number of flights, ground aircrafts, raise prices, and hedge fuel costs.
In terms of price performance, JBLU is the clear winner. JBLU’s stock has gained 22.2% over the past month compared to AAL’s 2.9% gain. Similarly, JBLU’s stock has risen 46.7% over the past three months, compared to AAL’s 11.7% gain.
Here are the reasons that could influence the performance of AAL and JBLU:
Recent Financial Results
For the fourth quarter, which ended December 31, 2023, AAL’s total operating revenues decreased marginally from the year-ago value to $13.06 billion. Its net income decreased 97.6% year-over-year to $19 million. Also, the company’s earnings per share decreased 97.4% year-over-year to $0.03.
AAL’s revenue per passenger miles rose 5.4% year-over-year to 58.33 billion. Also, its available seat miles (ASM) increased 5.8% over the prior-year quarter to 69.77 billion.
JBLU’s total operating revenues for the fiscal fourth quarter ended December 31, 2023, decreased 3.7% year-over-year to $2.33 billion. Its operating loss came in at $67 million, compared to an operating income of $43 million in the year-ago quarter.
Moreover, the company’s net loss stood at $104 million, compared to a net income of $24 million in the prior-year quarter. In addition, its loss per share came in at $0.31, compared to an EPS of $0.07 in the year-ago quarter.
Expected Financial Performance
AAL’s EPS for fiscal 2024 is expected to decrease 5.3% year-over-year to $2.51. On the other hand, its EPS for fiscal 2025 is expected to increase 30.3% year-over-year to $3.27. Its revenue for fiscal 2024 and 2025 is expected to increase 3.9% and 4.7% year-over-year to $54.87 billion and $57.42 billion, respectively.
For fiscal 2024 and 2025, JBLU’s EPS is expected to remain negative. Its revenue for fiscal 2024 is expected to decrease 1% year-over-year to $9.52 billion. On the other hand, its revenue for fiscal 2025 is expected to increase 7.1% year-over-year to $10.19 billion.
Profitability
AAL’s trailing-12-month revenue is 5.49 times what JBLU generates. AAL is more profitable, with a gross profit margin and EBITDA margin of 26.12% and 11.93%, compared to JBLU’s 24.99% and 5.47%, respectively. Also, AAL’s EBIT margin of 7.66% compares to JBLU’s negative 0.34%.
Valuation
In terms of forward EV/EBITDA, JBLU’s 9.17x is 61.2% higher than AAL’s 5.69x. Likewise, JBLU’s trailing-12-month Price/Sales ratio of 0.24x is 33.3% higher than AAL’s 0.18x.
Thus, AAL is relatively more affordable.
POWR Ratings
AAL has an overall rating of C, which equates to a Neutral in our proprietary POWR Ratings system. On the other hand, JBLU has an overall rating of F, translating to a Strong Sell. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. AAL has a B grade for Value, in sync with its discounted valuation. JBLU’s mixed valuation justifies its C grade for Value.
Both AAL and JBLU have a D grade for Stability, consistent with their 1.58 and 1.85 beta, respectively.
AAL’s mixed profitability justifies its C grade for Quality. JBLU has a D grade for Quality, in sync with its weak profitability.
Of the 27 stocks in the Airlines industry, AAL is ranked #17, while JBLU is ranked #26 in the same industry.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, and Sentiment. Get all the ratings of AAL here. Click here to view JBLU’s ratings.
The Winner
The airline industry is set for steady growth, thanks to the strong demand for travel. As consumer spending remains strong, people will be willing to undertake more journeys. Air traffic is expected to surpass the pre-pandemic levels by the middle of this year. However, airline companies face the risk of a recession later this year, which could impact profitability.
AAL ended the year strongly, with its fourth-quarter revenue and profits beating analyst estimates. The company expects to post an adjusted loss during the first quarter but has forecasted higher adjusted earnings for the full year 2024. On the other hand, JBLU expects its revenue and capacity to decline year-over-year in the first quarter.
Moreover, its 2024 capacity is expected to be in the lower single digits. The company has said that nearly 15 aircraft could be out of service by the end of the year. It has been struggling with higher costs, operational challenges, and changing travel patterns.
Although AAL is expected to end 2024 strongly, higher costs are expected to weigh on its profitability in the near term. Therefore, it could be wise to wait for a better entry point in the stock. On the other hand, JBLU’s struggles are expected to continue this year, with the company scrambling to return to profitability. Thus, it could be wise to avoid the stock.
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?
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.
AAL shares rose $0.11 (+0.75%) in premarket trading Wednesday. Year-to-date, AAL has gained 7.57%, versus a 7.33% 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.
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