The aviation market is well-poised to grow and expand significantly this year due to expectations of rising passenger numbers and demand for convenience, safety, and sustainability, fueled by advancements in technology such as Artificial Intelligence (AI) and Sustainable Aviation Fuel (SAF).

Given the industry’s rosy prospects, investors could consider monitoring the top airline stocks Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (VLRS), Cathay Pacific Airways Limited (CPCAY), and Air Canada (ACDVF)  for potential returns.

In January 2024, global passenger demand surged by 16.6% year-over-year, with international demand rising by 20.8% and domestic demand by 10.4%. Additionally, the load factor for both international and domestic flights saw positive increases, reaching 79.7% and 80.2%, respectively.

Besides, in the same month, global air cargo demand surged by 18.4% year-on-year, with international operations experiencing a growth of 19.8%. Capacity increased by 14.6%, predominantly due to the expansion of belly capacity, particularly in international operations, which rose by 25.8%.

In addition, the International Air Transport Association (IATA) expects a slight uptick in the airline industry’s net profit to $25.70 billion from $23.30 billion in 2023, alongside an increase in operating profits to $49.30 billion. Cargo volumes are set to rise to 61 million tonnes between 2023 and 2024, reflecting growing demand.

Moreover, U.S. airline fuel costs decreased to 3.93 billion for January 2024, marking an 11.2% drop from the previous month and a 14.8% decline from a year ago, which should bode well for airline companies.

The global airline industry is rapidly expanding due to factors like rising disposable incomes, stable jet fuel prices, and growing travel demand, supported by government aid and technological advancements. These factors would boost both domestic and international air travel this year and beyond. The global airline industry market is projected to grow at a CAGR of 25.5% by 2027.

Considering these favorable market trends, let’s discuss the fundamentals of three top Airlines stock picks: VLRS, CPCAY, and ACDVF.

Stock #3: Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (VLRS)

Based in Mexico City, Mexico, VLRS is a leading air transportation provider operating domestically in Mexico and internationally. Offering a network of approximately 590 daily flights across various destinations, the company provides services for passengers, cargo, and mail.

On March 6, 2024, VLRS reported an 86% load factor, with a 13.7% drop in ASM capacity and a 10.9% decline in RPMs year-over-year in the last month. Although there was a 15.2% decrease in passengers compared to February 2023, the company still achieved a strong load factor, surpassing the average for a low-season month.

VLRS’ total operating revenues grew 9.6% year-over-year to $899 million in the fourth quarter that ended December 31, 2023. The company’s operating expenses decreased 3.3% from a year-ago quarter to $735 million. Its operating income for the same quarter rose 173.3% from the prior-year quarter to $164 million.

Moreover, the company’s EPS amounted to $0.10, compared to its year-ago quarter’s loss per share of $0.02.

For the fiscal year 2024, VLRS expects its CAPEX to be around $300 million.

Analysts expect VLRS’ revenue to be $3.01 billion for the fiscal year ending December 2024. Its EPS for the current year is expected to increase 538.9% year-over-year to $0.45. For the fiscal year 2025, the company’s revenue and EPS are estimated to grow 8% and 56% from the prior year to $3.25 billion and $0.70, respectively.

VLRS’ shares have dropped 2.3% intraday to close the last trading session at $7.17.

VLRS’ POWR Ratings reflect this strong outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.

The stock has a B grade for Growth, Value, Sentiment, and Quality. In the Airlines industry, VLRS is ranked #3 among 26 stocks.

To access additional ratings for VLRS’ Momentum and Stability, click here.

Stock #2: Cathay Pacific Airways Limited (CPCAY)

Headquartered in Lantau Island, Hong Kong, CPCAY is an international passenger and air cargo carrier. The company offers a range of services, from airline operations to property investment and aircraft engineering, and it serves destinations across the Americas, Europe, Asia, and beyond.

On January 4, 2024, CPCAY considered new mid-sized widebody aircraft, seeking information from Airbus and Boeing. The evaluation targets fleet modernization, potentially replacing older mid-sized widebody jets, including 43 A330s averaging nearly 15 years old as of June 30, 2023.

On December 8, 2023, CPCAY placed an order to purchase six Airbus A350 freighter aircraft, with deliveries expected to start in 2027 and options for an additional 20 aircraft. The agreement, worth $2.70 billion at list price, aims to boost the airline’s cargo capacity and global network, enhancing its sustainability goals with highly fuel-efficient, next-generation freighters.

During the fiscal year that ended December 31, 2023, CPCAY’s total revenue rose 85.1% year-over-year to HK$94.49 billion ($12.08 billion). Its operating profit grew 335.8% from the previous year to HK$15.13 billion ($1.93 billion).

Also, the company’s profit for the year and EPS came in at HK$9.79 billion ($1.25 billion) and HK$125.80, compared to a loss of HK$6.62 billion ($846.42 million) and HK$112.40 per share in the previous year, respectively.

Street expects CPCAY’s revenue to grow 18.1% year-over-year to $14.16 billion for the fiscal year ending December 2024. Moreover, CPCAY’s stock has surged 16.5% over the past nine months and 8.2% over the past three months to close the last trading session at $5.44. Also, the stock gained marginally intraday.

CPCAY’s POWR Ratings reflect its robust prospects. The stock has an overall B rating, translating to a Buy in our proprietary rating system.

The stock has an A grade for Growth and a B for Stability and Quality. Within the same industry, CPCAY is ranked #2.

Click here to see CPCAY’s ratings for Value, Momentum, and Sentiment.

Stock #1: Air Canada (ACDVF)

Headquartered in Saint-Laurent, Canada, ACDVF is a major airline offering domestic, U.S. transborder, and international services, including vacation travel packages and air cargo in about 50 countries. Operating under brands like Air Canada Vacations and Air Canada Rouge, the airline has a diverse fleet of 192 aircraft and manages travel loyalty programs.

On March 7, 2024, ACDVF introduced over 100 new seasonal recipes and expanded snack and beverage options in the airline, aiming to improve the customer dining experience while focusing on comfort and convenience in travel.

On February 21, ACDVF collaborated with The Landline Company to offer luxury motorcoach services linking airports in Hamilton and Waterloo Region with Toronto Pearson. This multimodal option allows passengers to book combined itineraries, integrating motorcoach service with ACDVF flights. It will start as a pilot project in May 2024 and emphasize seamless and sustainable travel.

In the fourth quarter, which ended December 31, 2023, ACDVF generated operating revenue of C$5.18 billion ($3.84 billion), up 10.6% year-over-year. The company reported adjusted EBITDA of C$521 million ($386.31 million), an increase of 33.9% from the prior year’s quarter.

In addition, the company’s net cash flows from operating activities and free cash flow grew 52.2% and 109.1% year-over-year to C$985 million ($730.35 million) and C$669 million ($496.04 million), respectively.

The company anticipates adjusted EBITDA to range between $3.70 billion to $4.20 billion for the fiscal year 2024.

For the fiscal year ending December 2025, Street expects ACDVF’s revenue and EPS to grow 5.2% and 14% year-over-year to $17.75 billion and $3.15, respectively. Moreover, the company surpassed the revenue estimates in each of the trailing four quarters, which is impressive.

The stock has gained 1.1% over the past three months to close the last trading session at $13.23. It gained marginally intraday.

ACDVF’s optimistic fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.

It has an A grade for Value and a B for Quality. Within the same industry, ACDVF is ranked first.

In addition to the POWR Ratings stated above, access ACDVF’s Growth, Momentum, Stability, and Sentiment ratings here.

What To Do Next?

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CPCAY shares were unchanged in premarket trading Wednesday. Year-to-date, CPCAY has gained 4.82%, versus a 8.75% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...

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