According to the International Air Transport Association (IATA), the airline industry could turn profitable this year, driven by pent-up demand for travel despite growing economic uncertainties. Passenger demand is predicted to reach 85.5% of 2019 levels this year, generating $522 billion in revenue.

The passenger count is projected to surpass 4 billion for the first time since 2019. The airline sector is predicted to achieve a global net profit of $4.70 billion this year on $779 billion in revenue, with a net margin of 0.6%. According to Technavio, the market for commercial airlines is estimated to grow at a CAGR of 5.12% to reach $143.11 billion by 2026.

However, while several airline companies are lucrative enough to draw the capital required to advance the sector as it decarbonizes, few are still struggling because of strict regulations, high costs, inconsistent government policies, inadequate infrastructure, and a value chain where the benefits of linking the world are not evenly dispersed.

Given this backdrop, fundamentally strong airlines stock Southwest Airlines Co. (LUV) could be a wise addition to one’s portfolio this year. However, amid economic uncertainties and the industry’s post-pandemic challenges, it could be wise to avoid fundamentally weak stocks Spirit Airlines, Inc. (SAVE) and Astra Space, Inc. (ASTR).

Stock to Buy:

Southwest Airlines Co. (LUV)

LUV is a passenger airline that offers scheduled air transportation in the United States and nearby international markets. Additionally, it provides Rapid Rewards, a reward program that lets users earn points for money spent on Southwest base prices, in-flight entertainment, and connectivity services on Wi-Fi-capable aircraft.

On October 12, the company announced that its Aircraft Appearance Technicians, represented by the Aircraft Mechanics Fraternal Association (AMFA), had voted in favor of a new five-year deal. This agreement maintains LUV’s competitive cost position in the American airline sector while rewarding its appearance technicians with immediate and future pay increases.

For the fiscal 2022 third quarter ended September 30, 2022, LUV’s Passenger operating revenues increased 32.8% year-over-year to $5.61 billion, while its other operating revenues grew 39% year-over-year to $563 million. Total operating revenues rose 32.9% from the prior year’s quarter to $6.22 billion.

Analysts expect LUV’s EPS for the fiscal 2022 fourth quarter ending December 2022 to grow 405% year-over-year to $0.71, while the company’s revenue for the same quarter is expected to increase 28.6% year-over-year to $6.49 billion. The stock has gained 0.5% over the past five days to close its last trading session at $33.53.

LUV’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each weighted to an optimal degree.

The stock has a B grade for Quality and Growth. Within the Airlines industry, it ranks #6 of 30 stocks.

Click here to see the additional POWR ratings of LUV for Value, Momentum, Stability, and Sentiment.

Stocks to Avoid:

Spirit Airlines, Inc. (SAVE)

SAVE is an airline service provider. It connects 85 destinations in 16 countries across the United States, Latin America, and the Caribbean. It sells tickets via its call centers, airport ticket counters, and several third parties, including online, traditional, and electronic global distribution channels.

For the third quarter of fiscal 2022 ended September 30, 2022, SAVE’s total operating expenses increased 51.8% year-over-year to $1.38 billion. The company also reported an operating loss of $36.39 million compared to a profit of $14 million in the prior year’s quarter.

In addition, SAVE’s net loss and net loss per share stood at $36.78 million and $0.33 compared to a net income and earnings per share of $14.77 million and $0.14 in the previous year’s quarter, respectively.

SAVE’s trailing-12-month gross profit margin of 17.53% is 39.7% lower than the 20.06% industry average. Also, the stock’s trailing-12-month asset turnover ratio of 0.54% is 32.7% lower than the 0.80% industry average.

Furthermore, SAVE’s trailing-12-month ROCE, ROTC, and ROTA of negative 18.36%, negative 2.19%, and negative 4.27% compare to the industry averages of 14.24%, 6.76%, and 5.31%, respectively.

For fiscal 2022 ending December 2022, analysts expect SAVE to report a loss per share of $1.90. Shares of SAVE have slumped 8.6% over the past month and 19.7% over the past six months to close the last trading session at $19.38.

SAVE’s poor prospects are also apparent in its POWR Ratings. The stock has an overall rating of D, equating to a Sell in our proprietary rating system.

The stock has an F grade for Sentiment and a D for Quality. Within the Airlines industry, it ranks #27 of 30 stocks.

Beyond what we stated above, we also have SAVE ratings for Stability, Value, Momentum, and Growth. Get all SAVE ratings here.

Astra Space, Inc. (ASTR)

ASTR is a space launch corporation that develops, tests, and manages launch services along with other space-related goods and services. The business also develops and evaluates propulsion components that allow spacecraft to circle the Earth in space. Its primary clients are satellite operators and manufacturers, government organizations, and prime defense contractors.

For the fiscal 2022 third quarter ended September 30, ASTR’s operating loss widened 369.4% year-over-year to $199.71 million. The company’s net loss and loss per share worsened by 1,125.5% and 1,150% from the year-ago values to $199.11 million and $0.75, respectively.

Moreover, as of September 30, 2022, the company’s total assets came in at $215.91 million compared to $499.02 million as of December 31, 2021, whereas total liabilities stood at $101.83 million versus $62.50 million as of December 31, 2021.

ASTR’s trailing-12-month ROCE, ROTC, and ROTA of negative 151.87%, negative 57.89%, and negative 193.79% compare to the industry averages of 14.24%, 6.76%, and 5.31%, respectively. Moreover, the stock’s trailing-12-month asset turnover ratio of 0.03% is 96.9% lower than the 0.80% industry average.

Analysts expect ASTR’s loss per share of $0.74 for the current fiscal year ending December 2022. Moreover, the company is expected to report a loss per share of $0.39 for the next fiscal year. The stock has plunged 16.7% over the month and 92.9% over the year to close the last trading session at $0.43.

ASTR’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, equating to a Sell in our proprietary rating system.

The stock has an F grade for Stability and a D for Growth and Quality. Within the same industry, it is ranked #30 of 31 stocks.

Click here to see the additional rating of ASTR for Sentiment, Value, and Momentum.

LUV shares were trading at $34.76 per share on Friday afternoon, up $1.23 (+3.67%). Year-to-date, LUV has gained 3.24%, versus a 1.46% rise in the benchmark S&P 500 index during the same period.

About the Author: Aanchal Sugandh

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns. More...

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