The airlines’ industry was one of the hardest-hit industries last year, as lockdowns and travel bans halted airline operations worldwide entirely for several months. However, with 69% of the adult population vaccinated with at least one dose, travel restrictions are being eased, and the demand for airline services is rebounding.
The global airlines market is projected to grow at a 12.7% CAGR over the next five years to reach $744 billion by 2026. According to the International Air Transport Association (IATA), air traffic in the Americas region is expected to witness solid growth over the next 20 years. Pent-up demand and increasing consumer spending are driving a gradual return in leisure and commercial travel.
Given this backdrop, Wall Street analysts expect airline stocks Delta Air Lines, Inc. (DAL), United Airlines Holdings, Inc. (UAL), Alaska Air Group, Inc. (ALK), and SkyWest, Inc. (SKYW) to gain altitude with a 25%-plus rally in the coming months.
Delta Air Lines, Inc. (DAL)
DAL provides scheduled air transportation for passengers and cargo across a global network of more than 300 destinations in over 50 countries. The Atlanta, Ga.-company operates through two segments, Airline and Refinery.
On May 3, DAL and Sabre formulated a transformative global distribution agreement to drive change in the travel industry through commercial and technological innovation, while enabling DAL to continue to extend its reach with Sabre’s valuable network of global travel buyers.
DAL’s total operating revenue increased 385.4% year-over-year to $7.13 billion in its fiscal second quarter, ended June 30. Its operating income grew 116.9% from its year-ago value to $816 million, while its net income improved 111.4% year-over-year to $652 million. The company’s EPS increased 111.3% year-over-year to $1.02.
Analysts expect DAL’s revenues to increase 162.1% year-over-year to $8.16 billion in the current quarter, ending September 2021. A $0.27 consensus EPS estimate for the current quarter indicates a 108.2% rise from the same period last year. Shares of DAL have gained 50.9% over the past year.
Of the 14 Wall Street analysts that rated DAL, 11 rated it Buy while three rated it Hold. The $57.69 median price target indicates a potential 42.8% upside from its $40.41 last closing price. The 12-month price targets range from a low of $45.00 to a high of $73.00.
United Airlines Holdings, Inc. (UAL)
Chicago-based UAL provides air transportation services in North America, Asia, Europe, Africa, the Pacific, the Middle East, and Latin America. It transports people and cargo through its mainline and regional fleets. The company also offers catering, ground handling, and maintenance services for third parties.
On July 13, UAL agreed to acquire 100 of Heart Aerospace’s ES-19 aircraft, a 19-seat electric airliner that can decarbonize regional air travel. This purchase should complement the company’s long-term growth as the country focuses on innovative sustainability concepts and on reducing greenhouse gas emissions.
On June 29, UAL announced the purchase of 270 new Boeing and Airbus aircraft, representing the largest combined order in the airline’s history and the biggest by an individual carrier in the last decade. This should significantly boost UAL’s mainline daily departures and available seats across its North American network, thereby accelerating its business to meet the resurgence in air travel.
UAL’s total operating revenues increased 270.9% year-over-year to $5.47 billion in its fiscal second quarter, ended June 30. Its passenger revenue increased 541.1% from its year-ago value to $4.37 billion. Its cash and cash equivalents balance rose 222.3% from the prior-year quarter to $21.31 billion over this period.
The Street expects UAL’s revenues to rise 54.6% year-over-year to $23.74 billion in the current year. The company’s revenue is also expected to increase 58.4% year-over-year in the next year. A $3.15 consensus EPS estimate for the next year indicates a 124.4% improvement year-over-year. Shares of UAL have gained 43% over the past year and 12.8% over the past six months.
Of the 17 Wall Street analysts that rated UAL, seven rated it Buy, while nine rated it Hold and one rated it Sell. The $61.00 median price target indicates a potentialu28.3% upside from its $47.53 last closing price. The 12-month price targets range from a low of $43.00 to a high of $78.00.
Alaska Air Group, Inc. (ALK)
ALK operates as a passenger and cargo air transportation company. It operates through three segments: Mainline, Regional, and Horizon. ALK is based in Seattle, Wash.
On June 29, ALK announced a codeshare agreement with Qatar Airways to provide travelers with exciting and convenient options. This agreement, combined with its existing partnerships, should help strengthen its presence in the industry.
On June 17, ALK unveiled its plan to expand its connections from Boise Airport by adding new routes and more flights. The company is set to have up to 30 daily nonstop departures from Boise to 14 destinations on Alaska Airlines and on its sister carrier Horizon Air by this winter. This expansion, amid the rebounding demand for travel as vaccination rates rise, should lead to higher revenues for the ALK.
ALK’s total operating revenues increased 262.7% year-over-year to $1.53 billion in its fiscal second quarter ended June 30. Its operating income stood at $549 million, up 290.6% from the same period last year. Its net income grew 285.5% from its year-ago value to $397 million. The company’s EPS increased 281% year-over-year to $3.15.
A $1.82 billion consensus revenue estimate for its fiscal third quarter (ending September 2021) indicates a 159.8% increase year-over-year. The Street expects the company’s EPS to rise 119.2% from the prior-year quarter to $0.62 in the current quarter. ALK has an impressive earnings surprise history also; it beat the consensus EPS estimates in three out of the trailing four quarters. ALK has gained 58.9% over the past year. In addition, the stock gained 12% year-to-date.
The five Wall Street analysts that rated ALK rated it Buy. The $83.25 median price target indicates a potential 42.9% upside from its $58.25 last closing price. Their 12-month price targets range from a low of $78.00 to a high of $89.00.
SkyWest, Inc. (SKYW)
SKYW, through its subsidiaries, operates a regional airline and leases regional jet aircraft and spare engines to third parties. The St. George, Utah-based company operates through two-segment, SkyWest Airlines, and SkyWest Leasing.
On May 12, SKYW agreed with Alaska Airlines to purchase and operate eight E175 aircraft under a 12-year capacity purchase agreement. This should enable the company to continue to be the largest owner/operator of the Embraer E175 aircraft globally and offer better customer services.
SKYW’s operating income increased 21.9% year-over-year to $80.84 million in its fiscal first quarter ended March 31. Its net income grew 19.7% from its year-ago value to $35.90 million. The company’s EPS increased 20.3% year-over-year to $0.71.
A $2.57 billion consensus revenue estimate for the current year indicates a 20.9% improvement from the last year. In addition, analysts expect the company’s EPS to come in at $1.69 in the current year, indicating a 1,094.1% rise year-over-year. SKYW has gained 35.7% over the past year.
Of the four Wall Street analysts that rated SKYW, three rated it Buy while one rated it Hold. The $61.75 median price target indicates a potential 56.8% upside from its $39.39 last closing price. Their 12-month price targets range from a low of $58.00 to a high of $66.00.
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DAL shares were trading at $40.99 per share on Monday afternoon, up $0.58 (+1.44%). Year-to-date, DAL has gained 1.94%, versus a 18.59% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...
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