The airline industry was one of the worst affected sectors during the pandemic. However, the industry has been rebounding with declining coronavirus cases and surging travel demand ahead of the spring season. According to a Forbes report, airfares rose 33% in mid-February, owing to surging oil prices; but failed to deter travel demand. As the Russia-Ukraine dispute worsens, airfares might increase further. However, pent-up demand amid an economic rebound is expected to buoy the industry.

U.S. airports witnessed crowds of travelers over Presidents’ Day weekend, with the Transportation Security Administration screening nearly 8.4 million people. This momentum is expected to extend for the long run, as worldwide travel restrictions are rescinded.

Given this backdrop, Wall Street analysts expect fundamentally strong airline stocks Frontier Group Holdings, Inc. (ULCC), SkyWest, Inc. (SKYW), and Mesa Air Group, Inc. (MESA) to rally more than 54% in price in the coming months.

Frontier Group Holdings, Inc. (ULCC)

ULCC, a low-fare airline company in Denver, Colo., provides air transportation for passengers. The company operates an airline that serves approximately 120 airports throughout the United States and international destinations in the Americas. It has a fleet of approximately 110 Airbus single-aisle aircraft.

On Feb. 7, 2022, Barry Biffle, president, and CEO, said, “During the fourth quarter, we increased our capacity, departures, fuel efficiency and level of ancillary revenue per passenger versus the comparable pre-COVID period. We continue to view the impact of COVID-19 as transient and remain focused on getting the airline back to full utilization in 2022 while being nimble to counter any further COVID-19 impacts.”

ULCC’s total operating revenues increased 128.1% year-over-year to $609 million for the fourth quarter, ended Dec.31, 2021. Its adjusted non-GAAP net loss came in at $52 million, compared to a  $133 million loss in the prior period. Also, its loss per share was $0.25, compared to a $0.64 loss per share in the previous period.

Analysts expect ULCC’s revenue to grow 50.2% year-over-year to $3.09 billion in 2022. Its EPS is estimated to increase 309.1% to $1.35 in 2023. It surpassed the Street’s EPS estimates in three of the trailing four quarters. The stock closed yesterday’s trading session at $12.52. Wall Street analysts expect the stock to hit $19.33 in the near term, which indicates a potential 54.4% upside.

SkyWest, Inc. (SKYW)

St. George, Utah-based SKYW, through its subsidiaries, operates a regional airline in the United States. The company operates through two segments, SkyWest Airlines and SkyWest Leasing. It has a fleet of more than 500 aircraft connecting passengers to over 230 destinations throughout North America.

On Feb. 3, 2022, Chip Childs, CEO, SKYW, said, “We continued to see very strong demand for our product during the fourth quarter. While we are facing new headwinds as the industry prepares to operate in a post-pandemic environment and we work to rebalance staffing, we remain focused on delivering an exceptional product.”

For the fourth quarter, ended Dec. 31, 2021, SKYW’s total operating revenues came in at $777.16 million, up 31.8% year-over-year. Its net income was $4.33 million, compared to a $46.45 million loss in the previous period, while its EPS came in at $0.09, compared to a $0.93 loss per share in the prior period.

SKYW’s revenue is expected to be $2.93 billion in its fiscal year 2023, representing a 13.5% year-over-year rise. The company’s EPS is also expected to increase by 1,609.1% to $3.32 in 2023. It surpassed the Street’s EPS estimates in three of the trailing four quarters. The stock closed yesterday’s trading session at $26.12. Wall Street analysts expect the stock to hit $41.80 in the near term, which indicates a 60% potential upside.

Mesa Air Group, Inc. (MESA)

MESA operates as the holding company for Mesa Airlines, Inc. that provides regional air carrier services under capacity purchase agreements with American Airlines and United Airlines. The Phoenix, Ariz.-based company operates a fleet of approximately 167 aircraft.

On Feb. 9, 2022, Jonathan Ornstein, Chairman, and CEO, said, “Mesa’s results reflect the impact of COVID to our quarter’s operations and financials. Its effect on this quarter was significant and unlike anything we have seen in twenty years. This was further impacted by elevated pilot attrition as the major and national airlines have accelerated hiring.”

MESA’s contract revenue increased 7.7% year-over-year to $136.89 million for its 2022 first quarter, ended Dec. 31, 2021. Its total current liabilities came in at $250.38 million for the period ended Dec. 31, 2021, versus $258.19 million for the period ended Sept. 30, 2021. Its total liabilities came in at $960.02 million, compared to $968.55 million, also for the same period.

For its fiscal year 2023, analysts expect MESA’s revenue to be $605.96 million, representing an 11.5% year-over-year rise. Its EPS is estimated to increase 151.9% to $0.42 in 2023. The stock closed yesterday’s trading session at $4.25. Wall Street analysts expect the stock to hit $6.83 in the near term, which indicates a potential 60.7% upside.

ULCC shares were trading at $12.79 per share on Wednesday afternoon, up $0.27 (+2.16%). Year-to-date, ULCC has declined -5.75%, versus a -7.83% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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