In this piece, I evaluated two airline stocks, American Airlines Group Inc. (AAL) and JetBlue Airways Corporation (JBLU), to determine which is a better investment now. I believe AAL will generate better returns for the reasons explained throughout this article.

After bearing the brunt of the pandemic, the airline industry witnessed significant recovery over the past year and is anticipated to witness robust growth this year and beyond, driven by the growing demand for travel.

According to the Bureau of Transportation Statistics, the U.S. domestic air carriers recorded a net profit of $1.60 billion in 2022, compared to a loss of $2.80 billion in 2021.

After the pandemic, business travel, which had taken a backseat, again shows signs of revival. 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. Moreover, 3.4 million travelers were expected to pass during the Memorial Day weekend, rising 11% year-over-year.

Earlier this year, the International Civil Aviation Organization (ICAO) forecasted that air passenger demand in 2023 will recover to pre-pandemic levels on most routes by the first quarter and air passenger demand will grow by 3% over the pre-pandemic levels of 2019 will be achieved 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. During the first quarter, AAL surpassed its consensus EPS estimate by 80.7%, while its revenue came 0.1% below analyst estimates. On the other hand, JBLU’s EPS and revenue during the first quarter came above analyst estimates by 9.6% and 0.2%, respectively.

AAL recorded its highest-ever revenue during the first quarter, and its total revenue per ASM came in at 18.75 cents, representing an increase of 25.4% year-over-year. Also, its revenue passenger miles (RPMs) increased 17.4% year-over-year to 52.01 billion. In addition, its passenger revenue per ASM increased 30.1% over the prior-year quarter to 17.08 cents.

JBLU also reported its highest-ever first-quarter revenue. Its aircraft utilization rose 12.1% year-over-year to 11.1 hours per day. Its available seat miles (ASMs) increased 9% year-over-year to 16.77 billion. Also, its revenue passenger miles (RPMs) increased 22.4% year-over-year to 13.38 billion. In addition, its passenger revenue per ASM increased 24.9% over the prior-year quarter to 13.01 cents.

For fiscal 2023, AAL expects its adjusted EPS to come between $2.50 and $3.50, while its second-quarter adjusted EPS is expected to be between $1.20 and $1.40. On the other hand, JBLU’s adjusted EPS for fiscal 2023 is likely to come between $0.70 and $1, while its adjusted EPS for the second quarter is forecasted to be between $0.35 and $0.45.

In addition, JBLU has forecasted its revenue for fiscal 2023 to increase between high single digits and low double digits year-over-year. Its second-quarter revenue is expected to increase between 4.5% and 8.5% year-over-year.

AAL is a clear winner when it comes to price performance. AAL’s stock has gained 12.6% over the past month compared to JBLU’s 0.7% decline. In addition, AAL’s stock has gained 12.8% in price year-to-date, higher than JBLU’s 5.4% gain.

Here are the reasons why we think AAL could perform better in the near term:

Recent Financial Results

AAL’s total operating revenues for the first quarter ended March 31, 2023, increased 37% year-over-year to $12.19 billion. The company’s net cash provided by operating activities increased 181.3% year-over-year to $3.33 billion.

Its operating income came in at $438 million, compared to an operating loss of $1.72 billion in the year-ago quarter. Also, its net income came in at $10 million, compared to a net loss of $1.64 billion in the prior-year quarter. In addition, its EPS came in at $0.02, compared to a loss per share of $2.52 in the year-ago period.

For the fiscal first quarter ended March 31, 2023, JBLU’s total operating revenues increased 34.1% year-over-year to $2.33 billion. Its operating expenses increased 22.2% year-over-year to $2.57 billion. Its operating loss narrowed 34.1% year-over-year to $242 million. The company’s net loss narrowed 24.8% year-over-year to $192 million. In addition, its loss per share narrowed 26.6% year-over-year to $0.58.

Expected Financial Performance

AAL’s EPS for fiscal 2023 and 2024 is expected to increase 428.2% and 22.1% year-over-year to $2.64 and $3.22. Its revenue for fiscal 2023 and 2024 is expected to increase 7.6% and 4.3% year-over-year to $52.67 billion and $54.91 billion. Its EPS and revenue for the quarter ending June 30, 2023, are expected to increase 72.1% and 1.4% year-over-year to $1.31 and $13.61 billion, respectively.

For fiscal 2023 and 2024, JBLU’s EPS is expected to increase 185% and 64.7% year-over-year to $0.68 and $1.12. Its revenue for fiscal 2023 and 2024 is expected to increase 9.8% and 6.8% year-over-year to $10.05 billion and $10.74 billion. Its EPS and revenue for the quarter ending June 30, 2023, are expected to increase 183% and 6.4% year-over-year to $0.39 and $2.60 billion, respectively.

Profitability

AAL’s trailing-12-month revenue is 5.36 times what JBLU generates. AAL is more profitable, with a net income margin and levered FCF margin of 3.39% and 4.98%, compared to JBLU’s negative 3.07% and 3.87%, respectively. Also, AAL’s asset turnover of 0.78x compares to JBLU’s 0.72x.

Valuation

In terms of forward GAAP P/E, AAL is currently trading at 6.24x, 138% lower than JBLU’s 14.85x. AAL’s trailing-12-month Price/Sales ratio of 0.18x is 27.8% lower than JBLU’s 0.23x. Likewise, AAL’s trailing-12-month EV/EBITDA of 6.21x compares to JBLU’s 8.41x.

Thus, AAL is relatively more affordable.

POWR Ratings

AAL has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. On the other hand, JBLU has an overall rating of C, translating to a Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. AAL has a B grade for Value, in sync with its discounted valuation. JBLU’s mixed valuation justifies its C grade for Value.

Of the 27 stocks in the B-rated Airlines industry, AAL is ranked #8, while JBLU is ranked #22 in the same industry.

Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Stability, Sentiment, and Quality. Click here to view AAL’s ratings. Get all the ratings of JBLU here.

The Winner

After three years of pain, the airline industry looks well-positioned to perform well thanks to the huge pent-up demand for travel. The air passenger demand is expected to surpass the pre-pandemic levels.

Airlines like AAL and JBLU benefit from the strong travel recovery, as was evident in their record first-quarter revenues. In terms of fundamentals, profitability, and valuation, AAL tops JBLU. Considering these factors, AAL is a better investment choice than JBLU.

Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Airlines industry here.

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AAL shares were trading at $14.67 per share on Tuesday morning, up $0.32 (+2.23%). Year-to-date, AAL has gained 15.33%, versus a 10.88% 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. More...

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