The travel industry has been witnessing positive momentum in 2022, with an expected contribution of $8.6 trillion to the global economy this year. The new survey emphasizes the industry’s rebound trends, which almost match pre-pandemic levels. Besides, the global passenger air transport market is expected to hit $657.15 billion in 2025, growing at a CAGR of 6% between 2020 and 2025. The industry’s growth will mainly continue due to the post-pandemic rebound in commercial and non-commercial flights.  

Furthermore, investors’ optimism in this space is evidenced by the U.S. Global Jets ETF’s (JETS) 11% returns over the past month, compared to the SPDR S&P 500 Trust ETF’s (SPY) 2.5% loss over the same period. 

With this in mind, today I’ll analyze and compare two airline stocks, United Airlines Holdings, Inc. (UAL) and American Airlines Group Inc. (AAL), to find out which is a better investment for 2022. 

United Airlines operates as an air transportation company in the US, Asia, Europe, Africa, the Pacific, the Middle East, and Latin America. The company also offers a variety of other services for third parties, including catering, ground handling, training, and maintenance services. American Airlines is a Texas-based network air carrier that offers scheduled air transportation services for passengers and cargo through its hubs in the US and partner gateways. The company has a mainline fleet of 865 aircraft.  

Year-to-Date (YTD), UAL stock has soared 16%, while shares of AAL have risen 12.5% over the same period.

Recent Quarterly Performance & Analysts Estimates 

On April 20th, United Airlines issued an earnings report for the first quarter of 2022. In Q1, United Airlines’ total revenue was up 135.1% on a year-over-year basis to $7.57 billion. This revenue growth was achieved due to the substantial increase in Passenger revenue to $6.35 billion, compared to $2.32 billion in 1Q21. However, the company’s total revenue figure stood at 21.1% below 1Q19 levels. Also, the company missed the revenue estimates by $110 million. As a result, its Non-GAAP EPS has been reported at ($4.24), missing Wall Street expectations by $0.02.

Furthermore, the company’s first-quarter net loss increased 1.4% YoY to $1.38 billion. However, its Adjusted EBITDA came in at ($747 million), representing a significant improvement compared to the year-ago figure of ($2.1 billion).

United Airlines’ management expects the company to return to profitability in the second quarter, even with rising fuel costs. The company also expects the second quarter will be a historic inflection point for the business. Wall Street analysts expect UAL’s earnings to rise in the second quarter of 2022 to $1.62 per share. Besides, its revenue for the next quarter should increase 110.85% year-over-year to $11.54 billion.

American Airlines revealed its quarterly report on April 21st. For its first quarter ended March 31st, 2021, AAL’s total revenue increased 121.9% year-over-year to $8.9 billion, beating Wall Street’s consensus by $80 million. The company’s revenue growth was mainly related to a 146% YoY increase in advertising revenue to $7.8 billion due to a 97.2% increase in revenue passenger miles (RPMs), driven by a significant recovery in domestic and short-haul international demand. Besides, American Airlines disclosed a Non-GAAP EPS of ($2.32), topping Wall Street estimates by $0.09.

Although its net loss increased 30.8% year-over-year to $1.64 billion, the company’s pre-tax loss excluding net special items dropped from $3.52 billion in 1Q21 to $1.93 billion as of 1Q22. 

For the second quarter, analysts expect AAL’s EPS to come in at ($0.72), up 57.14% year-over-year. Additionally, Wall Street expects the company’s revenue to increase by 49.91% YoY to $11.21 billion in FQ2.

Comparing Options Market Sentiment

Looking at the September 16th, 2022 option chain for UAL and AAL, we can define options market sentiment by analyzing the open interest levels. In United Airlines’ case, the open calls/open puts ratio at the $52.50 strike price comes in at 5.25x, implying a bullish options market sentiment. When it comes to AAL, the open calls/open puts ratio at the $22.00 strike price stands at 6.16x, indicating a relatively stronger bullish market sentiment.  

Bullish Options Bets On AAL Stock

On April 15th, the $19.00 calls that expire on May 20th for AAL stock have seen their open interest rise by 3,845 contracts to a total of about 22,677 (source: barchart.com). A buyer of those calls needs American Airlines stock to rise to $20.85 by the expiration date to break even. That’s an upside potential of over 3% from AAL’s Thursday closing price. 

Conclusion 

Putting it all together, I think AAL currently presents a more attractive buying opportunity. The airline industry is set to rebound in 2022, especially considering the recent bullish comments from industry executives. And I believe that American Airlines is poised to capitalize better on the industry’s rebound based on its higher-than-expected first-quarter report and strong bullish options sentiment, which is also backed by bullish bets from the options traders. 

UAL shares were trading at $52.59 per share on Friday morning, up $1.74 (+3.42%). Year-to-date, UAL has gained 20.12%, versus a -8.60% rise in the benchmark S&P 500 index during the same period.

About the Author: Oleksandr Pylypenko

Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist. More...

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