The airline sector is growing thanks to technological advancements and robust demand. However, the industry might struggle with macroeconomic headwinds in the near term.
So, I think it could be wise to wait for a better entry point in Delta Air Lines, Inc. (DAL) and United Airlines Holdings, Inc. (UAL), for reasons discussed throughout this article.
The International Air Transport Association (IATA) announced a significant increase in air travel demand for March 2023. Also, according to the International Air Transport Association (IATA), total traffic (measured in revenue passenger kilometers, or RPKs) increased by 52.4% year over year in March 2023 compared to March 2022.
On the other hand, Department of Transportation data shows that flights were delayed for more than 5.3 million hours between January 2019 and February 2023. According to newly updated official data, most flight delays in recent years have been caused by situations within airlines' control.
The aviation industry has faced hurdles due to the pandemic and geopolitical conflicts, which have disrupted supply chains, staff shortages, more raw material requirements, and pricing increases.
Delta Air Lines, Inc. (DAL)
DAL provides scheduled air transportation for passengers and cargo in the United States and internationally. The company operates through two segments, Airline and Refinery.
DAL’s trailing-12-month CAPEX/Sales of 10.37% is 262.8% higher than the industry average of 2.86%, while its trailing-12-month net income margin of 3.51% is 45.4% lower than the industry average of 6.42%.
DAL’s total operating revenues for the quarter ended March 31, 2023, increased 36.5% year-over-year to $12.76 billion. However, its net loss and loss per share came in at $363 million and $0.57.
Also, its total current liabilities came in at $13.40 billion for the period that ended March 31, 2023, compared to $13.01 billion for the period that ended December 31, 2022. Its total assets came in at $73.13 billion, compared to $72.29 million for the same period.
The consensus revenue estimate of $56.05 billion for the year ending December 2023 represents a 10.8% increase year-over-year. Its EPS is expected to grow 74.6% year-over-year to $5.59 for the same period. DAL’s shares have lost 8% over the past year and 5.5% over the past three months.
DAL’s POWR Ratings reflect uncertainty. The stock has an overall rating of C, equating to a Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
DAL also has a C grade for Value, Momentum, Sentiment, and Quality. It is ranked #13 out of 27 stocks in the B-rated Airlines industry. Click here for the additional POWR Ratings for Stability, Growth for DAL.
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.
UAL’s trailing-12-month ROCE of 37.31% is 169.8% higher than the industry average of 13.83%. Also, its trailing-12-month levered FCF margin of 0.16% is 97% lower than the industry average of 5.21%.
For the fiscal first quarter that ended March 31, 2023, UAL’s total operating revenue increased 51.1% year-over-year to $11.43 billion. The company’s total current liabilities came in at $21.59 billion for the period that ended March 31, 2023, compared to $20.06 billion for the period that ended December 31, 2022.
However, its net loss came in at $194 million, down 85.9% year-over-year, while its loss per share decreased 86.1% year-over-year to $0.59.
Analysts expect UAL’s revenue to increase 17.4% year-over-year to $52.76 billion for the year ending December 2023. Its EPS is expected to grow 267.8% year-over-year to $9.27 in 2024. The stock has slumped 9.5% over the past three months.
UAL has an overall C rating, equating to a Neutral in our POWR Ratings system. It has a C grade for Momentum, Quality and Sentiment. It is ranked #5 in the same industry.
Beyond what is stated above, we’ve also rated UAL for Value, Stability, and Growth. Get all UAL ratings here.
What To Do Next?
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DAL shares were trading at $37.51 per share on Friday afternoon, up $1.13 (+3.11%). Year-to-date, DAL has gained 14.15%, versus a 12.30% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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