In this article we are going to list the 10 best airline stocks to buy for 2024 using the intelligence we gained from the latest hedge fund filings.
Despite rising inflation, consumers worldwide continue to spend on travel and experiences, defying all expectations and forecasts. Latest data from the International Air Transport Association (IATA) estimates that the airline industry is expected to generate $30.5 billion in net income in 2024, driven by higher ticket prices and consumers’ desire to travel. Last year, the industry’s net income came in at $27.4 billion. According to data from the World Travel & Tourism Council (WTTC) the economic impact of the travel industry this year is expected to soar to $11.1 trillion, beating its precious level of $10 trillion recorded in 2019. The Council expects the tourism industry to become a $16 trillion industry over the next decade, accounting for about 11.4% of the global GDP.
However, not all is rosy in the airline industry. The competition in the industry is increasing, while geopolitical headwinds and rising employee costs continue to batter small and large airline companies. IATA was quick to highlight that despite the industry growth, airlines’ profit per passenger is just $6.14. Travel demand in China also remains subdued amid real estate and economic crisis in the country. However, analysts believe sooner or later the country would rebound and the best airline and travel companies would benefit from the influx of Chinese tourists.
A KPMG report on the airline industry highlighted the resilience of the airline industry and its fast recovery to pre-pandemics levels:
“The latest air travel data from IATA shows that passenger travel for November 2023 globally has reached 99.1% of November 2019 levels. November 2023 international RPKs reached 94.5% of November 2019 levels, while domestic traffic was 6.7% above the November 2019 level. Although international global travel remains 5.5% below pre-pandemic levels, IATA director general Willie Walsh said that the gap is “rapidly closing”, adding that current “economic headwinds are not deterring people from taking to the skies”. IATA also noted that long-term airline profitability shows that while the industry is exposed to external shocks, it typically returns to profitability “relatively quickly”.”
In this backdrop, we decided to take a look at some of the best airline stocks to buy in 2024 according to hedge funds. For that we first listed down all holdings of an airline ETF, which provides investors exposure to the airline industry and tracks some of the biggest and most important airlines and aviation companies of the US and worldwide. From these stocks we chose 10 companies with the highest number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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10. Ryanair Holdings Plc (NASDAQ:RYAAY)
Number of Hedge Fund Investors: 20
Ireland-based ultra low-cost carrier Ryanair Holdings Plc (NASDAQ:RYAAY) ranks 10th on our list of the best airline stocks to buy in 2024 according to hedge funds. The company last month posted results for the year ending March 2024. Profit after tax in the period jumped 34% to 1.92 billion euros ($2.09 billion), while revenue saw a growth of 25% year on year to 13.44 billion euros. Despite Boeing-related delays, the company saw a 9% increase in traffic. As consumers reel under inflation and look for cheaper options, the budget airliner has been able to grow and see 100% load factors and expansion throughout Europe.
However, Ryanair Holdings Plc (NASDAQ:RYAAY) bears believe the company’s growth might slow down in the coming months amid increasing competition and costs. Another problem for the company has been online travel agents (OTAs) who have been adding unauthorized fees to the company’s fares. These concerns were highlighted by Deutsche Bank last month which downgraded the stock to Hold from Buy, pointing to the company’s acknowledgement that it’s seeing customer “resistance” against increasing prices. The bank’s analyst Jaime Rowbotham expects fares per passenger to remain flat on a YoY basis in fiscal 2024. The analyst said this would affect Ryanair Holdings Plc (NASDAQ:RYAAY)’s net profit in the future. Despite this, the stock’s valuation is attractive when compared to peers. UBS said in a May report that Ryanair Holdings Plc (NASDAQ:RYAAY) ‘s 12-month forward PE was 29% less than its US peers. The company’s revenue is expected to rise 9.90% this year and by 11.9% in fiscal 2026, while earnings growth is expected to come in at 13%. Based on these growth estimates, Ryanair’s forward P/E of 11.22 is indeed low.
As of the end of the first quarter of 2024, 20 hedge funds in Insider Monkey’s database of 919 reported owning stakes in Ryanair Holdings Plc (NASDAQ:RYAAY).
In its fourth quarter 2023 investor letter, Oakmark International Fund stated the following regarding Ryanair Holdings plc (NASDAQ:RYAAY):
“Ryanair Holdings plc (NASDAQ:RYAAY) (Ireland), a European ultra-low-cost airline, was the top contributor to the Fund’s performance this quarter. Ryanair released strong results for the first half of fiscal-year 2024 and was accompanied by an even stronger outlook, in our view. The company’s revenue grew 30% year over year, and average fares increased by 24% to EUR 58, driven by record demand and constrained capacity at European peers. Total passengers flown expanded 11% year over year to 105.4 million, and management is on track to maintain its target of 183.5 million passengers for 2024, depending on Boeing’s ability to meet its delivery commitments. Management is expecting full-year 2024 net income to be between EUR 1.85-2.05 billion ahead of the EUR 1.82 billion consensus estimate. The company’s strong free cash flow levels and balance sheet allowed Ryanair to reinstate a EUR 400 million dividend (35 cents per share). We spoke with CEO Michael O’Leary about additional uses for its excess capital and were happy to hear about an incremental EUR 1.5 billion return to shareholders starting in 2025. We continue to be optimistic about Ryanair’s future.”
9. JetBlue Airways Corporation (NASDAQ:JBLU)
Number of Hedge Fund Investors: 23
JetBlue Airways Corporation (NASDAQ:JBLU) shares saw turbulence in April when the company posted Q1 results which showed that higher operating costs per passenger affected its profit in the period. JetBlue Airways Corporation (NASDAQ:JBLU) also decreased its FY24 revenue forecast amid oversupply issues in Latin America, one of the company’s biggest markets. JetBlue management said it expects a slowdown in the region and explained the challenges during Q1 earnings call:
“However, that also means most of the industry has shifted a portion of their flying to meet this increasing demand for leisure travel, allocating capacity to many of JetBlue’s bread and butter routes. Specifically we continue to see elevated capacity in the Latin region, which represents 35% of our total ASMs and is one of our most valuable and profitable geographies. The elevated capacity in this region is significantly pressuring the overall revenue acceleration we expected to see from the first quarter into the second quarter. We’ve, therefore, revised our full year guidance and no longer expect to approach breakeven adjusted operating margin for the full year.”
JetBlue Airways Corporation (NASDAQ:JBLU) has been in the news this year, but not for the right reasons. In March, the company called off its merger with Spirit Airlines after losing an anti-trust lawsuit. During the second quarter, JetBlue Airways Corporation (NASDAQ:JBLU) expects its revenue to tank by 10.5% to 6.5% and available seat miles to be down 5% to 2%. Cost per available seat mile excluding fuel is also expected to soar in the range of 5.5% to 7.5%. In April, 5000 pilots represented by the Air Line Pilots Association (ALPA) gave a notice to the company to start negotiations for a new collective bargaining agreement. In an environment where the industry players are already getting squeezed by increasing employee costs and declining per-seat revenue, JetBlue Airways Corporation (NASDAQ:JBLU)’s troubles could increase with new pay raises. In FY 2023, JetBlue incurred over $3 billion in salaries, wages, and compensation, which was an over 11% YoY increase.
All of this would hinder JetBlue Airways Corporation (NASDAQ:JBLU)’s plan to turn to profitability. According to data from Yahoo Finance, JetBlue’s earnings growth over the past five years has been in the negative territory, at -9.6%. Average analyst price estimate on the stock set by Wall Street is $6.02, very near to the stock’s current price of $5.56. This shows the stock does not have much upside from the current levels.
8. SkyWest Inc (NASDAQ:SKYW)
Number of Hedge Fund Investors: 24
Utah-based SkyWest Inc (NASDAQ:SKYW) is a regional airliner that has seen its share price gain 52% so far this year. In April SkyWest Inc (NASDAQ:SKYW) posted solid Q1 results, which showed its GAAP EPS in the period came in at $1.45 beating estimates by $0.26. Revenue in the quarter jumped 16.2% year over year to $804 million, surpassing estimates by $3.93 million. SkyWest Inc (NASDAQ:SKYW) bulls believe the company has a wider moat in the industry, as it targets on regional flights to smaller airports. SkyWest Inc (NASDAQ:SKYW) also has a large fleet for a small airline, which also gives it a pricing advantage over others. The company has long-term, fixed-fee contracts with major airlines including Alaska (ALK), American (AAL), Delta (DAL), and United (UAL). SkyWest Inc (NASDAQ:SKYW) expenses are also low because it does not spend a fortune on marketing and booking; most of its customers come from its partnerships with peers. Last year, SkyWest’s expense-to-sales ratio was 9.1%, while this metric was 18.7% for United Airlines, 15.2% for Southwest and about 18% for Spirit.
Despite its strong performance, SkyWest Inc (NASDAQ:SKYW) forward P/E ratio is 11.48, much lower than the industry median of 18. Its forward EV/EBITDA, a common metric used to value airlines, is just 6.2, much lower than the industry median of 12.88. The company’s revenue in 2025 is expected to rise by 9.60% while earnings growth is expected to be at around 17.10%. This makes SkyWest an undervalued play and one of the best airline stocks to buy for 2024 and beyond.
7. Copa Holdings, S.A. (NYSE:CPA)
Number of Hedge Fund Investors: 26
Panama-based airline company Copa Holdings, S.A. (NYSE:CPA) owns Copa Airlines and Colombia-based AeroRepública. Last month the company beat Q1 estimates on both EPS and revenue. Adjusted EPS in the quarter came in at $4.19, beating estimates by $0.86. Revenue in the quarter jumped 3% year over year to $893.5 million, beating estimates by $21.74 million. In April, the company’s capacity (ASMs) increased by 9.6%, while system-wide passenger traffic (RPMs) surged 11.2% on a YoY basis.
Copa Holdings, S.A. (NYSE:CPA) has impressed the Wall Street amid its smart expense management despite a tough industry environment. During the first quarter, the company’s operating expenses inched up by just 0.5% amid lower maintenance costs. Unit costs also declined by 6.9%, and by 2% excluding fuel costs. Operating margins also increased from 22.3% to 24.2%. Analysts believe Copa Holdings, S.A. (NYSE:CPA) margins would have been over 30% had it not suffered the impact of the grounding of the Boeing 737 MAX 9 which cost the airline around $44 million.
Wall Street expects Copa’s earnings growth to come in at 9.60% in 2024 and revenue growth to come in at 8.50%. Its forward P/E ratio is 6.39, much lower than industry median of 21. The stock’s forward EV / EBITDA (FWD) is 4.18, compared to the industry median of 11. Wall Street analysts have an average price target of $158.54 on the stock, which presents a 62% upside potential from the current levels.