The airline sector is anticipated to expand, fueled by pent-up demand for travel. Therefore, investors could benefit from airline stocks American Airlines Group Inc. (AAL - Get Rating), Gol Linhas Aéreas Inteligentes S.A. (GOL - Get Rating), and Controladora Vuela Compañía de Aviación, S.A.B. de C.V (VLRS - Get Rating) considering their upside potential.

According to the International Air Transport Association (IATA), the airline industry is expected to make a net profit of $9.8 billion in 2023, more than double the previous forecast of $4.7 billion. The industry’s total revenues are expected to grow 9.7% year-over-year to $803 billion, marking the first time it will top the $800 billion mark since 2019.

However, macroeconomic headwinds such as supply chain snarls and high inflation might continue to test the airline sector. Given the high fuel prices and capital costs, airlines may find it challenging to expand their capacity incrementally.

However, in response to the challenging past few years, IATA’s director general Willie Walsh stated, “The fact that the industry could survive that demonstrates the resilience and determination and the actions that have been taken.” He added, “We’re fully acknowledging challenges but we’re still quietly confident about the future.”

Moreover, the global airline industry is anticipated to grow at a CAGR of 25.5% between 2022 and 2027. Given these factors, investors could consider the featured airline stocks. Let’s take a closer look at their fundamentals.

American Airlines Group Inc. (AAL - Get Rating)

AAL operates as a network air carrier. The company provides scheduled air transportation services for passengers and cargo through its hubs as well as through partner gateways worldwide.

In terms of forward non-GAAP P/E, AAL’s 6.54x is 62.1% lower than the 17.25x industry average. Its 0.23x forward Price/Sales is 83.2% lower than the 1.36x industry average. Likewise, its 0.81x forward EV/Sales is 53.5% lower than the 1.74x industry average.

AAL’s total operating revenues for the second quarter (ended March 31, 2023) increased 37% year-over-year to $12.19 billion. Its operating income came in at $438 million, compared to an operating loss of $1.72 billion from the year-ago quarter. In addition, its net EPS came in at $0.02, compared to a $2.52 net loss per share from the prior-year quarter. 

AAL’s EPS and revenue for the quarter ended June 30, 2023, are expected to increase 109.7% and 2.1% year-over-year to $1.59 and $13.71 billion, respectively. It has a commendable earnings surprise history, surpassing its consensus EPS estimates in each of the trailing four quarters.

Over the past nine months, the stock has gained 54.1% to close the last trading session at $18.57. 

AAL’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

Within the A-rated Airlines industry, it is ranked #9 of 28 stocks. The company has a B for Growth, Value, Momentum, and Quality. Click here to access the POWR Ratings of AAL for Stability and Sentiment.

Gol Linhas Aéreas Inteligentes S.A. (GOL - Get Rating)

Headquartered in São Paulo, Brazil, GOL provides scheduled and non-scheduled air transportation services for passengers and cargo; and maintenance services for aircraft and components worldwide. It operates a fleet of 146 Boeing 737 aircraft with 674 daily flights.

In terms of forward EV/EBITDA, GOL’s 5.92x is 46.6% lower than the 11.09x industry average. Its 0.26x forward Price/Sales is 81.1% lower than the 1.36x industry average. Likewise, its 13.19x forward non-GAAP P/E is 23.5% lower than the 17.25x industry average.

GOL’s total net revenue increased 52.8% year-over-year to R$4.92 billion ($1.01 billion) for the first quarter that ended March 31, 2023. Its gross profit increased 131.7% year-over-year to R$1.41 billion ($288.98 million).

GOL’s revenue for the quarter ended June 30, 2023, is expected to increase 34.1% year-over-year to $841.39 million. Over the past three months, the stock has gained 99.2% to close the last trading session at $4.76.

GOL’s POWR Ratings reflect its positive outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. It is ranked #5 in the same industry. It has a B grade for Growth, Momentum, Sentiment, and Quality. We have also given GOL grades for Value and Stability. Get all GOL ratings here.

Controladora Vuela Compañía de Aviación, S.A.B. de C.V (VLRS - Get Rating)

Headquartered in Mexico City, Mexico, VLRS provides air transportation services for passengers, cargo, and mail in Mexico and internationally. It also offers merchandising, travel agency, and loyalty programs, as well as specialized and aeronautical technical services.

In terms of forward EV/ Sales, VLRS’ 1.19x is 31.5% lower than the 1.74x industry average. Its 4.48x forward EV/EBITDA is 59.6% lower than the 11.09x industry average. Likewise, its 0.46x forward Price/Sales is 66.4% lower than the 1.36x industry average.

VLRS’ total revenue for the fourth quarter that ended March 31, 2023, increased 28.9% year-over-year to $731 million. Its net cash flow provided by operating activities increased 6.1% year-over-year to $208 million. 

Analysts expect VLRS’ EPS for the quarter ending September 30, 2023, to increase 75.8% year-over-year to $0.53. Its revenue for the quarter ended June 30, 2023, is expected to increase 22.5% year-over-year to $846.22 million. Over the past nine months, the stock has gained 71.6% to close the last trading session at $13.35.  

VLRS’ 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 is ranked #8 in the Airlines industry. The stock has an A grade for Sentiment and B for Growth and Momentum. Click here to see the additional ratings of VLRS for Value, Stability, and Quality.

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AAL shares were trading at $18.75 per share on Tuesday afternoon, up $0.18 (+0.97%). Year-to-date, AAL has gained 47.41%, versus a 16.12% rise in the benchmark S&P 500 index during the same period.

About the Author: Malaika Alphonsus

Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions. More...

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