The airline industry suffered a severe blow last year as air travel practically came to a halt at the beginning of the COVID-19 pandemic. However, thanks to an accelerating pace of vaccinations and $1,400 federal recovery checks that have been disbursed to countless U.S. households, the demand for leisure travel is on the rise.

Investors’ interest in airline stocks is also rising because of the perceived potential recovery. This is evidenced by the U.S. Global Jets ETF’s (JETS) 25% gains over the past three months. Domestic travel has been rising rapidly, given the pent-up  demand for leisure travel after nearly a year of lockdowns and social distancing.

New Zealand Prime Minister Jacinda Ardern announced on April 6, 2021 that Australian and New Zealand residents will be able to travel between the two nations without having to quarantine beginning April 19, 2021. So, there is some hope that the United States and neighboring countries will follow suit sooner rather than later. Furthermore, since airlines are taking several precautionary measures, such as international contract tracing programs, people are now feeling more confident about air travel. Keeping these factors in mind, we think it is wise to bet on SkyWest, Inc. (SKYW) and Mesa Air Group, Inc. (MESA).

SkyWest, Inc. (SKYW)

Founded in 1972, SKYW operates regional airline operations in the United States through its subsidiaries SkyWest Airlines, Inc. and ExpressJet Airlines, Inc. With a fleet of more than 450 aircraft, it offers daily departures to destinations across the United States, Canada, Mexico and the Caribbean. The company also leases regional jet aircraft and spare engines to third parties.

SKYW’s total revenue declined 20.7% year-over-year to $589.64 million for the fourth quarter, ended December 31, 2020, because of reduced flight schedules and lower demand resulting from the COVID-19 pandemic. However, its revenue has increased 28.9% sequentially, reflecting improving conditions. The company’s airport-related expenses also decreased nearly 20% year-over-year to $23.69 million.

The company’s EPS is expected to increase 52.5% year-over-year for the quarter ended March 31, 2021 to $0.9. Its revenue is expected to come in at $636.02 million for the quarter ending June 30, 2021, which represents an 81.7% year-over-year increase.

SKYW took delivery of four new E175 aircraft during its fiscal year 2020 fourth quarter under a  contract with Delta Air Lines, Inc. (DAL). One new CRJ900 aircraft to be financed by DAL and operated by SKYW is also scheduled for delivery in its fiscal 2021. As per its flying contract with American Airlines Group, Inc. (AAL) 18 aircraft deliveries are anticipated in the second half of its fiscal 2021 and two deliveries are expected in its fiscal 2022. Furthermore, its wholly owned subsidiary SkyWest Airlines received roughly $233 million in February 2021 from  a Payroll Support Program Extension Under the 2021 Appropriations Act. The stock has gained 148.7% over the past year and closed yesterday’s trading session at $55.93.

SKYW’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

The stock has a B grade for Momentum and Quality. We’ve graded it for Growth, Value, Stability, and Sentiment as well. Click here to access all SKYW’s ratings.

SKYW is ranked #3 of 29 stocks in the Airlines industry.

Mesa Air Group, Inc. (MESA)

Headquartered in Phoenix, Arizona, MESA is the holding company for Mesa airlines. It operates out of Phoenix, AZ (PHX), Dallas, Texas (DFW), Houston, Texas (IAH), sterling, Virginia (IAD), and Louisville, Kentucky (SDF), and its fleet consists of 145 aircraft. The company provides scheduled, commercial passenger service throughout the U.S., Canada, Mexico, Cuba and the Bahamas.

For its fiscal year 2021 first quarter, ended December 31, 2020, even though MESA’s total revenue declined 18.3% year-over-year, it increased 39.2% sequentially to $150.37 million. Its net income has increased by 30.9% year-over-year to $14.12 million. Furthermore, the company’s non-GAAP EPS came in at $0.36, up 16.1% year-over-year.

For the quarter ended March 31, 2021, analysts expect MESA’s EPS to increase 380% year-over-year to $0.24. It surpassed consensus EPS estimates in each of the trailing four quarters. Its revenue for fiscal 2022 is expected to increase 18.4% year-over-year to $710.51 million.

Last month, MESA signed a conditional agreement with London-based Gramercy Associates Ltd. to expand its international reach by developing a European-based joint venture. The plan is expected to begin operations by year’s end.  The company also signed a letter of intent in  February to lease an additional Boeing 737-400F cargo aircraft. The stock has gained 446.8% over the past year to close yesterday’s trading session at $13.78.

It’s no surprise that MESA has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has a B grade for Quality, Value, Growth, and Momentum. Click here to see the additional POWR Ratings for MESA (Stability and Sentiment).

MESA is ranked #1 in the same industry.

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SKYW shares were trading at $53.85 per share on Wednesday afternoon, down $2.08 (-3.72%). Year-to-date, SKYW has gained 33.59%, versus a 9.05% rise in the benchmark S&P 500 index during the same period.

About the Author: Ananyo Guha Niyogi

Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand. More...

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