The airline industry is anticipated to experience a significant surge in profitability and growth this year. So, investors could consider closely monitoring fundamentally sound airline stocks SkyWest, Inc. (SKYW), Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (VLRS), and Cathay Pacific Airways Limited (CPCAY) in April.
In 2024, the airline industry is expected to prioritize sustainability and technology, aiming to improve passenger experiences and operational efficiency. Innovations in fuel-efficient aircraft, advanced entertainment systems, and biometric technologies reflect this commitment.
International Air Transport Association (IATA) announced that airlines are projected to achieve a net profit margin of 2.7% this year, amounting to $25.70 billion, an improvement over the $23.30 billion recorded in 2023. Operating profits are expected to increase to $49.30 billion, driven by record revenues of $964 billion.
Additionally, global travel is forecasted to reach a historic high of 4.70 billion people, with cargo volumes expected to rise to 61 million tonnes.
Besides, IATA reported a 16.6% increase in global passenger demand for January 2024, with international demand rising by 20.8% and domestic demand by 10.4%. The load factor for international flights remained at 79.7%, while for domestic flights, it increased to 80.2%.
Moreover, the Bureau of Transportation Statistics reported that U.S. airlines used 1.456 billion gallons of fuel in January 2024, 8.1% less than in December 2023. The cost per gallon of fuel decreased by 3.4% from December 2023 to $2.70.
In addition, the Biden-Harris Administration allocated $20 million from the Bipartisan Infrastructure Law to upgrade 20 airport traffic control towers across the U.S., supporting safety and efficiency in aviation operations. This investment aims to modernize existing towers and build new ones, advancing President Biden's infrastructure agenda.
The in-flight catering services market is also expanding due to rising demand for long-haul flights and personalized meal options, coupled with advancements in automation and supply chain management. The adoption of innovative trends and safety protocols is driving further growth in the industry.
The global in-flight catering market is projected to grow at a CAGR of 8.6% to reach $25.88 Billion by 2030.
Considering these favorable market trends, let’s discuss the fundamentals of three top Airlines stock picks, starting with the third choice.
Stock #3: SkyWest, Inc. (SKYW)
SKYW operates a regional airline in the United States with a fleet of 603 aircraft, providing scheduled passenger and air freight services to destinations across North America. The company also offers leasing services for regional jet aircraft and on-demand charter and ground handling services.
On March 3, 2024, SKYW secured a new flying agreement with United Airlines Holdings, Inc. (UAL) to add 20 partner-financed E175s to its fleet under a four-year contract, bolstering its ongoing partnership. By the end of 2024, SKYW is scheduled to operate a total of 278 E175 aircraft, further solidifying its position as a key regional airline operator.
On February 1, SKYW repurchased 1 million shares of common stock for $45 million during the fourth quarter of 2023. For the year ended December 31, 2023, the company repurchased 10.60 million shares of common stock for $289 million. Generally, share buybacks create value for shareholders.
SKYW’s operating revenues increased 10.4% year-over-year to $751.79 million in the fourth quarter that ended December 31, 2023. It posted an operating income of $27.62 million, compared to its year-ago quarter’s operating loss of $35.06 million. Its net income was $17.52 million, or $0.42 per share, compared to a net loss of $47.10 million, or $0.93 per share, in the same quarter of 2022.
As of December 31, 2023, SKYW had a total of 485 aircraft in scheduled service or under contract, and its passenger count increased by 5.2% to 9.93 million compared to the prior year’s quarter. Also, by the end of 2026, the company is scheduled to operate a total of 258 E175 aircraft.
Analysts expect SKYW’s revenue and EPS to grow 14.2% and 734.4% year-over-year to $3.35 billion and $6.42, respectively, for the fiscal year ending December 2024. Moreover, the company surpassed consensus revenue and EPS estimates in three of the trailing four quarters, which is impressive.
SKYW’s shares have surged 68% over the past nine months and 208.5% over the past year to close the last trading session at $68.39.
SKYW’s POWR Ratings reflect this promising 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 an A grade for Growth and a B for Quality. In the Airlines industry, SKYW is ranked #9 among 26 stocks.
To access additional ratings for SKYW’s Value, Momentum, Stability, and Sentiment, click here.
Stock #2: Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (VLRS)
Based in Mexico City, Mexico, VLRA is a leading air transportation provider, serving both domestic routes within Mexico and international destinations. With a network encompassing around 590 daily flights, the company offers services for passengers, cargo, and mail.
On March 6, 2024, VLRS announced that it had achieved an 86% load factor last month despite a 13.7% drop in ASM capacity and a 10.9% decline in RPMs year-over-year. Despite 15.2% fewer passengers compared to February 2023, the company maintained a strong load factor, surpassing the average for a low-season month.
In the fourth quarter that 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 for the same quarter rose 173.3% from the prior-year quarter to $164 million.
Moreover, the company’s EPS amounted to $0.10, compared to its year-ago quarter’s loss per share of $0.02. During the quarter, the company’s total fleet of aircraft amounted to 129, compared to 117 in the same period of 2022.
For the fiscal year 2024, VLRS expects its CAPEX to be around $300 million.
Street anticipates VLRS to report revenue of $3 billion for the fiscal year ending December 2024. The company’s EPS for the current year is expected to increase 354.4% year-over-year to $0.32.
The stock has gained 21% over the past six months to close the last trading session at $7.73. Also, it gained 2.3% intraday.
VLRS’ robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The stock has a B grade for Growth, Value, Sentiment, and Quality. Within the same industry, VLRS is ranked #4.
In addition to the POWR Ratings stated above, access VLRS’ Momentum and Stability ratings here.
Stock #1: Cathay Pacific Airways Limited (CPCAY)
Headquartered in Lantau Island, Hong Kong, CPCAY is an international passenger and air cargo carrier that provides various services, including airline operations, property investment, and aircraft engineering. Its extensive network spans destinations across the Americas, Europe, Asia, and beyond.
On March 21, 2024, CPCAY released its traffic figures for February 2024, revealing a total of 1,801,174 passengers carried, marking a significant increase of 61.6% compared to February 2023. Cargo tonnage increased by 3% compared to the same period last year, reaching a total of 107,039 tonnes.
On March 4, CPCAY expanded its collaboration with Michelin-starred restaurant Duddell's, introducing new 'Hong Kong Flavours' menus featuring authentic Cantonese and regional Chinese specialties.
Available for first and business-class passengers on selected long-haul flights departing from Hong Kong, these menus aim to enhance the culinary experience and showcase the city's iconic dishes.
During the fiscal year that ended December 31, 2023, CPCAY’s total revenue rose 85.1% year-over-year to HK$94.49 billion ($12.07 billion). Its operating profit grew 335.8% from the previous year to HK$15.13 billion ($1.93 billion).
Furthermore, the company’s profit for the year and EPS came in at HK$9.79 billion ($1.25 billion) and HK$125.80, compared to a loss of HK$6.62 billion ($845.97 million) and HK$112.40 per share in the previous year, respectively.
For the fiscal year ending December 2024, analysts expect CPCAY’s revenue to grow 18.6% year-over-year to $14.32 billion. CPCAY’s stock has gained 6.1% over the past six months and 9.4% over the past year to close the last trading session at $5.27.
CPCAY’s POWR Ratings reflect its optimistic prospects. The stock has an overall A rating, translating to a Strong Buy in our proprietary rating system.
The stock has an A grade for Quality and a B for Growth, Value, and Stability. Within the same industry, CPCAY is ranked first.
Click here to see CPCAY’s ratings for Momentum and Sentiment.
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.
CPCAY shares were trading at $5.27 per share on Wednesday morning, down $0.43 (-7.50%). Year-to-date, CPCAY has gained 6.30%, versus a 9.41% 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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