Consumer appetite for air travel has surged over the past year. Against this backdrop, let’s discuss the strong fundamentals of high-flying airliners, International Consolidated Airlines Group S.A. (ICAGY), Air Canada (ACDVF), and Air France-KLM SA (AFLYY) to see if they are worth buying this week.
Leisure travel returned to pre-pandemic bookings this spring. On top of it, airline executives, during a recent JPMorgan industry conference, expressed their optimism about strong demand and profits this year, despite higher costs.
Moreover, with summer around the corner, we will likely witness an uptick in travel demand. This bodes well for the companies in this space. Of late, encouraged by the lifting of pandemic-related travel restrictions in Europe, the demand for transatlantic flights to Europe is surging despite a worsening economic outlook and risks of gridlock at some of the airports in Europe.
Airline ticket prices have gone up due to persistent capacity constraints and an unending thirst for travel after the pandemic. According to the International Air Transport Association (IATA), the industry is expected to generate a net profit of $4.7 billion in 2023, carrying more than 4 billion passengers to the skies. Additionally, the sector is anticipated to bring in $779 billion in total revenues, driven by the rebound in passenger demand.
Furthermore, the global airline industry is expected to reach $635.8 billion in 2030, exhibiting a CAGR of 3.1%. Given this backdrop, fundamentally sound airline stocks ICAGY, ACDVF, and AFLYY could be excellent buys.
International Consolidated Airlines Group S.A. (ICAGY)
Based in Harmondsworth, the United Kingdom, ICAGY is an airline company primarily engaged in the provision of passenger and cargo transportation services globally. It also offers services for ground handling, trustee, storage, custody, and the construction of airport infrastructure, in addition to leasing and maintaining aircraft and operating tours.
In February, the company announced the acquisition of Air Europa, subject to regulatory and other approvals in the next 18 months. With this acquisition, ICAGY aims to improve its position in Latin America and expand its footprint in Asia while enabling it to grow Madrid as a hub, with benefits for customers, employees, and shareholders.
Moreover, the company looks forward to achieving significant cost cuts that it expects to bear fruit between 2026 and 2028 upon the closing of this deal.
ICAGY’s total revenue increased 80.7% year-over-year to €6.39 billion ($6.99 billion) for the fiscal fourth quarter that ended December 31, 2022. Its operating profit came in at €486 million ($532.40 million), compared to an operating loss of €278 million ($304.54 million) in the year-ago period.
Also, its profit after tax came in at €232 million ($254.15 million), compared to a loss after tax of €311 million ($340.69 million) for the prior-year period.
In terms of trailing-12-month ICAGY’s CAPEX/ Sales of 16.80% is 492.6% higher than the 2.83% industry average. Likewise, its trailing-12-month ROCE of 30.18% is 118.2% higher than the industry average of 13.83%.
Analysts expect ICAGY’s revenue to increase 78.3% year-over-year to $6.46 billion in the fiscal first quarter (ended March 31, 2023). It surpassed the revenue estimates in each of the trailing four quarters, which is excellent.
Shares of ICAGY have gained 61.8% over the past six months and 21.9% year-to-date to close the last trading session at $3.56.
ICAGY’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Growth and a B for Value. In the 27-stock B-rated Airlines industry, it is ranked #3. To see additional POWR Ratings for ICAGY for Momentum, Stability, Sentiment, and Quality, click 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 provides scheduled service and air freight lift directly to more than 180 airports across six continents.
Recently, the company announced the strategic expansion of its international network with the addition of new, non-stop flights from its hub at Vancouver International Airport (YVR) to Dubai. The carrier's new Vancouver-Dubai flights should complement ACDVF's daily service between Toronto and Dubai, broadening its presence in fast-growing international markets.
Also, this new addition is expected to assist the company in enhancing its customer experience, offering convenient access to the Middle East, Eastern Africa, the Indian subcontinent, and Southeast Asia via Dubai in partnership with Emirates.
On April 6, with the New Distribution Capability (NDC) technology creating new retailing opportunities for airlines, ACDVF and Amadeus expanded their long-standing partnership. Under this agreement, the company would implement Altéa NDC to optimize distribution via the Amadeus Travel Platform.
“We’re proud to take this significant next step by offering our NDC content for the first time through a GDS. Now Agencies and Travel Buyers will have access to our most complete range of content and be well-equipped for the introduction of new products and capabilities,” said Mark Nasr, Senior Vice President, Products, Marketing & eCommerce at Air Canada.
During the fourth quarter that ended on December 31, 2022, ACDVF’s operating revenues increased 71.4% year-over-year to C$4.68 billion ($3.49 billion). Its adjusted EBITDA increased significantly from the year-ago value to C$389 million ($289.11 million), while its net income came in at C$168 million ($124.86 million), compared to a net loss for the period of C$493 million ($366.41 million) for the year-ago period.
Also, its earnings per share came in at C$0.41, compared to a loss per share of C$1.38 in the year-ago period.
In terms of trailing-12-month, ACDVF’s CAPEX/ Sales of 9.50% is 234.9% higher than the 2.83% industry average. Likewise, its trailing-12-month levered FCF Margin of 4.82% is 18.2% higher than the industry average of 4.08%.
For the fiscal first quarter (ended March 31, 2023), ACDVF’s revenue is expected to increase 65.5% year-over-year to $3.32 billion. Over the past six months, the stock has gained 13.2% to close the last trading session at $14.02.
ACDVF’s POWR Ratings reflect its solid prospects. The stock has an overall B rating, which translates to Buy in our proprietary rating system.
It also has a B grade for Growth. Within the same industry, it is ranked #7. Click here to see the additional ratings for ACDVF (Value, Momentum, Stability, Sentiment, and Quality).
Air France-KLM SA (AFLYY)
Headquartered in Paris, France, AFLYY offers scheduled aircraft services for the movement of people and freight within Metropolitan France, the Benelux, the rest of Europe, and beyond. The company operates through Network; Maintenance; Transavia; and Other segments.
On April 3, AFLYY and the CMA CGM Group officially launched their long-term strategic air cargo partnership they made public in May 2022. This commercial joint venture should enable both companies to meet the customers’ needs with unique seamless services across the globe while accelerating the expansion of their cargo business.
For the fiscal fourth quarter that ended December 31, 2022, AFLLY’s revenue from ordinary activities increased 47.3% year-over-year to €7.13 billion ($7.81 billion). Also, its net income for the period came in at €504 million ($552.12 million), compared to a net loss for the period of €126 million ($138.03 million) for the year-ago period.
The company’s total current assets came in at €11.01 billion ($12.06 billion) for the period that ended December 31, 2022, compared to €10.73 billion ($11.75 billion) for the period that ended December 31, 2021.
In terms of trailing-12-month AFLYY’s CAPEX/ Sales of 11.26% is 297.2% higher than the 2.83% industry average. Likewise, its trailing-12-month levered FCF Margin of 6.19% is 51.8% higher than the industry average of 4.08%.
Street expects AFLYY’s revenue for the fiscal year 2023, ending December 31, to increase 14.7% year-over-year to $32.37 billion, while its EPS is expected to amount to $0.22 in the same period.
EPS and revenue are expected to increase by 50.2% and 3.3% year-over-year to $0.33 and $33.45 billion for the fiscal year 2024, respectively. Moreover, the company surpassed the revenue estimates in each of the trailing four quarters.
Over the past nine months, the stock has gained 42% to close the last trading session at $1.68. Also, it has gained 23.1% year-to-date.
AFLYY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Value and a B for Quality. In the same industry, it is ranked #2 out of 27 stocks. Click here to see the other ratings of AFLYY for Growth, Momentum, Stability, and Sentiment.
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ICAGY shares were trading at $3.59 per share on Thursday afternoon, up $0.03 (+0.84%). Year-to-date, ICAGY has gained 22.95%, versus a 8.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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