A resurgence in travel enthusiasm, demonstrated by diverse demographics and positive passenger sentiments, is fostering notable growth in the airline industry, with optimistic projections for profitability, connectivity, and demand recovery in the coming years.
Given the positive trends, it could be prudent to monitor resilient airline stocks Ryanair Holdings plc (RYAAY), International Consolidated Airlines Group S.A. (ICAGY), and Air Canada (ACDVF) as they appear poised for substantial gains this year. Let's understand this in more detail.
A travel resurgence is being fueled by an impressive 48% of Americans planning holiday journeys. Diverse demographics showcase a notable surge in travel interest from Thanksgiving to mid-January, with an average holiday spending reaching $2,725.
Avid traveler enthusiasm has catapulted airlines to pre-pandemic connectivity, with an extraordinary recovery speed noted. Willie Walsh, Director General of the International Air Transport Association (IATA), anticipates a return to normal growth for both passengers and cargo by 2024.
In addition, the IATA has revealed enhanced profitability forecasts for airlines in 2023, with stabilization anticipated in 2024. Expected net profits for the airline industry in 2024 are $25.70 billion, reflecting a 2.7% net profit margin, a slight improvement over the projected $23.30 billion and 2.6% net profit margin for 2023.
The expected 2024 net profit is a testament to aviation's remarkable resilience following significant losses in recent years.
Total revenues are projected to surge by 7.6% year-over-year, reaching a record $964 billion in 2024. Moreover, a historical peak of 4.7 billion travelers is expected in 2024, surpassing the pre-pandemic level of 4.5 billion in 2019.
Furthermore, IATA's November 2023 passenger polling data reflects a positive sentiment among travelers and holds promising implications for the airline industry. With a third traveling more than pre-pandemic and 44% anticipating increased travel, the industry stands to benefit from a resurgence in demand and passenger activity.
Considering this encouraging outlook, let’s look at the fundamentals of the three Airlines stocks.
Stock #3: Ryanair Holdings plc (RYAAY)
Based in Swords, Ireland, RYAAY operates as a scheduled passenger airline, offering ancillary services encompassing non-flight schedules, Internet-related services, and in-flight sales. The company additionally markets car rentals, travel insurance, and accommodation through its website and mobile app.
On December 15, RYAAY unveiled an alliance with SAP Concur, the foremost brand in travel, expense, and invoice management. The collaboration integrates RYAAY's economical fares and extensive network of 3,300 daily flights to 230 destinations across 36 countries directly into Concur Travel, fortifying corporate travelers' accessibility to RYAAY's offerings and fostering financial growth.
On December 13, RYAAY unveiled its most expansive Summer schedule to Morocco, featuring an unprecedented 1,100 weekly flights spanning 175 routes, including 35 new additions. The monumental $1.4 billion investment introduces RYAAY's acclaimed ultra-low fares to 11 domestic Moroccan routes.
This would stimulate traffic and solidify RYAAY's market presence, paving the way for sustained expansion and strategic advancements.
For the second quarter that ended September 2023, RYAAY’s operating revenues increased 22.7% year-over-year to €4.93 billion ($5.39 billion). Its operating profit rose 33.6% from the year-ago value to €1.70 billion ($1.86 billion).
Also, the company’s profit for the quarter and earnings per ordinary share grew 40.8% and 40% from the prior year’s period to €1.52 billion ($1.66 billion) and €1.32, respectively.
Analysts expect RYAAY’s revenue to increase 25.6% year-over-year to $14.64 billion for the fiscal year ending March 2024. The company’s EPS for the ongoing period is estimated to grow 39.2% from the prior year to $9.43. Also, the company surpassed the consensus revenue and EPS estimates in three of four trailing quarters.
Shares of RYAAY have gained 62.6% over the past year to close the last trading session at $121.15.
RYAAY’s fundamentals are reflected in its POWR Ratings. RYAAY has a B grade for Sentiment and Quality. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
It is ranked #9 out of 28 stocks within the Airlines industry. In addition to the POWR Ratings I’ve highlighted, you can see RYAAY’s Growth, Value, Stability, and Momentum ratings here.
Stock #2: International Consolidated Airlines Group S.A. (ICAGY)
Headquartered in Harmondsworth, United Kingdom, ICAGY is a provider of passenger and cargo transportation services. The company's portfolio includes aircraft leasing, maintenance, tour operations, call center services, ground handling, trustee, storage and custody, and airport infrastructure development.
On August 14, ICAGY entered a collaboration with Microsoft Corporation (MSFT), signing the largest co-funded Sustainable Aviation Fuel (SAF) agreement. Aligned with MSFT’s carbon reduction goals, the strategic investment positions ICAGY at the forefront of sustainability, enhancing brand value and attracting conscious investors.
For the third quarter that ended September 30, 2023, ICAGY’s total revenue increased 18% year-over-year to €8.65 billion ($9.45 billion). Its operating profit grew 43.3% from the year-ago value to €1.75 billion ($1.91 billion). Also, the company’s profit after tax for the period grew 44.2% from the prior year’s period to €1.23 billion ($1.34 billion).
Analysts expect ICAGY’s revenue to increase 31.4% year-over-year to $31.97 billion for the fiscal year that ended December 2023. The company’s EPS for the same period is expected to increase 643.2% year-over-year from the previous year to $0.96. Moreover, ICAGY topped the consensus EPS estimates in all four trailing quarters.
The stock has gained 24.5% over the past year, closing the last trading session at $3.76.
ICAGY’s robust outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
ICAGY has a B grade for Value. It is ranked #6 out of 28 stocks within the Airlines industry.
Click here to access additional ICAGY ratings for Growth, Momentum, Stability, Sentiment, and Quality.
Stock #1: Air Canada (ACDVF)
Based in Saint-Laurent, Canada, ACDVF offers domestic, U.S. transborder, and international airline services, spanning approximately 50 countries. The company extends its expertise to air cargo services and engages in the development, operation, marketing, and distribution of vacation travel packages, complemented by travel loyalty programs.
On December 13, ACDVF announced that shippers and forwarders utilizing ACDVF Cargo can leverage DoKaSch Temperature Solutions' Opticooler RKN, certified by Air Canada Cargo, across destinations served by ACDVF's widebody fleet or dedicated freighters.
ACDVF's expansive global network enhances its ability to offer highly dependable and swift transportation services to diverse destinations, positioning the company for heightened reliability and efficiency in the transport of sensitive cargo.
On December 5, ACDVF unveiled air-to-rail booking options, allowing customers to seamlessly connect at European airports with four major passenger rail systems. The initiative enables ACDVF customers to effortlessly include onward rail journeys to various destinations, enhancing convenience and providing a seamless travel experience.
During the fiscal 2023 third quarter that ended September 30, 2023, ACDVF's operating revenues increased 19.2% year-over-year to CAD 6.34 billion ($4.75 billion). Its adjusted EBITDA grew 73.1% from the year-ago value to CAD 1.83 billion ($1.37 billion).
Also, the company’s adjusted net income and adjusted earnings per share rose 197.2% and 218.7% from the prior year’s period to CAD 1.28 billion ($960.11 million) and CAD 3.41, respectively.
The consensus revenue estimate of $16.02 billion for the fiscal year ended December 2023 reflects a 30.4% year-over-year increase. Similarly, the consensus revenue estimate of $16.82 billion for the current fiscal year (ending December 2024) exhibits a 5% rise from the previous year. Furthermore, the company topped the consensus revenue estimates in all of the trailing four quarters.
The stock has marginally gained over the past month, closing the last trading session at $13.30.
ACDVF’s strong prospects are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
ACDVF has an A grade for Value and Quality and a B for Growth. It is ranked #2 out of 28 stocks within the same industry.
Click here to access the additional ACDVF ratings (Momentum, Stability, and Sentiment).
What To Do Next?
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RYAAY shares were trading at $123.56 per share on Thursday morning, up $2.41 (+1.99%). Year-to-date, RYAAY has declined -7.35%, versus a -1.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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