Despite the challenging macroeconomic environment, the airline industry is experiencing strong tailwinds due to the revival of travel demand. Moreover, airliners will likely see their profit margins expand as the travel demand is expected to remain robust.
Therefore, it could be wise to invest in airline stocks Ryanair Holdings plc (RYAAY), United Airlines Holdings, Inc. (UAL), International Consolidated Airlines Group S.A. (ICAGY), and Copa Holdings, S.A. (CPA).
Before diving deeper into their fundamentals, let’s discuss what’s happening in the airline industry.
The pandemic severely affected air travel. However, air travel rebounded strongly in 2022. According to an International Air Transport Association (IATA) survey, revenue passenger kilometers (RPK) rose 64.4% year-over-year in 2022.
IATA Director General Willie Walsh said, “The industry left 2022 in far stronger shape than it entered, as most governments lifted COVID-19 travel restrictions during the year, and people took advantage of the restoration of their freedom to travel.”
Airlines for America has estimated that a record 256.80 million passengers will fly during the June to August quarter, an increase of 1% over the same period in 2019.
Earlier this year, the International Civil Aviation Organization (ICAO) forecasted that air passenger demand would grow by 3% over the pre-pandemic levels by the end of fiscal 2023.
ICAO also expects air passenger demand to remain strong in 2024 as it is likely to grow by 4% over 2019 levels. The airline industry’s growth will be driven by increasing disposable income, pent-up travel demand, and international travel and tourism expansion.
The IATA expects airlines globally to achieve a net profit of $9.8 billion in 2023, which is commendable considering the significant losses suffered during the pandemic.
Let’s take a closer look at the fundamentals of the featured stocks.
Ryanair Holdings plc (RYAAY)
Headquartered in Swords, Ireland, RYAAY operates scheduled-passenger airline services across Europe. It is also involved in providing various ancillary offerings like in-flight sales, car rentals, accommodation booking, travel insurance, aircraft handling, ticketing, maintenance, and gift voucher sales.
In terms of the trailing-12-month EBIT margin, RYAAY’s 13.39% is 37.5% higher than the 9.73% industry average. Its 25.14% trailing-12-month levered FCF margin is 379.4% higher than the 5.24% industry average. Likewise, its 23.49% trailing-12-month Return on Common Equity is 69.8% higher than the industry average of 13.83%.
RYAAY’s total operating revenues for the fiscal year ended March 31, 2023, increased 124.4% year-over-year to €10.78 billion ($12.06 billion). Its profit for the year attributable to equity holders of the parent came in at €1.31 billion ($1.46 billion), compared to a loss for the year of €240.80 million ($269.18 million).
In addition, its EPS came in at €1.1529, compared to a loss per share of €0.2130 in the year-ago period.
Analysts expect RYAAY’s EPS and revenue for the quarter ended June 30, 2023, to increase 218% and 49.1% year-over-year to $2.43 and $3.97 billion, respectively. Over the past nine months, the stock has gained 86.4% to close the last trading session at $111.40.
RYAAY’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, translating to a 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 Sentiment and a B for Momentum and Quality. It is ranked #9 out of 28 stocks in the A-rated Airlines industry. To see RYAAY’s Growth, Value, and Stability ratings, click here.
United Airlines Holdings, Inc. (UAL)
UAL, through its subsidiaries, provides air transportation services in North America, Asia, Europe, Africa, the Pacific, the Middle East, and Latin America. The company transports people and cargo through its mainline and regional fleets.
On July 12, 2023, UAL introduced a new domestic first-class seat with wireless charging, vegan leather upholstery, 13-inch screens, 18-inch tray tables, Bluetooth, privacy screens, and an ergonomic design.
Mark Muren, United Managing Director of Identity, Product, and Loyalty at UAL, said, "As we evolve the onboard experience, we're upending old industry norms and anticipating future needs to accommodate the new ways people live and travel."
On June 22, 2023, UAL introduced a new mobile app feature to streamline customer support during travel disruptions. The self-service tool offers personalized re-booking options, bag tracking, and eligible meal/hotel vouchers. UAL aims to enhance transparency and improve customer experience through technology, building on its track record of implementing innovative technologies and policies.
Its 37.31% trailing-12-month Return on Common Equity is 169.8% higher than the 13.83% industry average. Its 12.82% trailing-12-month Capex/Sales is 348.9% higher than the 2.86% industry average. Likewise, its 31% trailing-12-month gross profit margin is 3.9% higher than the industry average of 29.83%.
For the first quarter ended March 31, 2023, UAL’s total operating income increased 51.1% year-over-year to $11.43 billion. Its adjusted net loss narrowed 85% year-over-year to $207 million. Its adjusted loss per share narrowed 85.1% year-over-year to $0.63. Additionally, its adjusted EBITDA came in at $667 million, compared to an adjusted EBITDA loss of $747 million in the prior-year quarter.
Street expects UAL’s EPS and revenue for the quarter ended June 30, 2023, to increase 183.1% and 15% year-over-year to $4.05 and $13.93 billion, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 56% to close the last trading session at $55.23.
UAL’s POWR Ratings reflect strong prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It is ranked #14 in the same industry. It has a B grade for Growth, Value, and Momentum. Click here to see the other ratings of UAL for Stability, Sentiment, and Quality.
International Consolidated Airlines Group S.A. (ICAGY)
Headquartered in Harmondsworth, United Kingdom, ICAGY, with its subsidiaries, provides passenger and cargo transportation services in the United Kingdom, Spain, Ireland, the United States, and the rest of the world.
Its 79.20% trailing-12-month Return on Common Equity is 472.7% higher than the 13.83% industry average. Likewise, its 14.99% trailing-12-month Capex/Sales is 424.8% higher than the 2.86% industry average.
ICAGY’s total revenues for the first quarter ended March 31, 2023, increased 71.4% to €5.89 billion ($6.58 billion). Its operating profit came in at €9 million ($10.06 million), compared to an operating loss of €718 million ($802.62 million). Its cash, cash equivalents, and interest-bearing deposits rose 18.4% year-over-year to €11.37 billion ($12.71 billion).
For the quarter ended June 30, 2023, ICAGY’s EPS and revenue are expected to increase 364.8% and 35.5% year-over-year to $0.26 and $8.19 billion, respectively. It has surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 61.8% to close the last trading session at $4.06.
ICAGY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Growth and a B for Value, Momentum, and Stability. It is ranked #13 in the Airlines industry. To see the other ratings of ICAGY for Sentiment and Quality, click here.
Copa Holdings, S.A. (CPA)
CPA provides airline passenger and cargo services. It is based in Panama City, Panama.
Its 38.17% trailing-12-month gross profit margin is 28% higher than the 29.83% industry average. Its 18.36% trailing-12-month EBIT margin is 88.7% higher than the 9.73% industry average. Likewise, its 13.80% trailing-12-month net income margin is 117.4% higher than the industry average of 6.35%.
CPA’s revenue passenger miles for the first quarter ended March 31, 2023, increased 1.5% sequentially to 5.72 billion. Its adjusted net profit rose 435.1% year-over-year to $157.80 million. The company’s cash and cash equivalents came in at $242.31 million, compared to cash and cash equivalents of $122.42 million for the fiscal year ended December 31, 2022.
Analysts expect CPA’s EPS and revenue for the quarter ended June 30, 2023, to increase 954.7% and 13.8% year-over-year to $3.38 and $789.12 million, respectively. It has surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 83.5% to close the last trading session at $114.48.
CPA’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Quality and a B for Momentum. It is ranked #11 in the same industry. To see the other ratings of CPA for Growth, Value, Stability, and Sentiment, click here.
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RYAAY shares were trading at $110.64 per share on Friday afternoon, down $0.76 (-0.68%). Year-to-date, RYAAY has gained 47.99%, versus a 18.52% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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