In this article, we will look at the 10 best airline stocks to buy now. If you want to skip our discussion on the airline industry, you can go directly to 5 Best Airline Stocks To Buy Now.
According to The International Air Transport Association (IATA), demand for air travel continued its robust upward momentum in 2022 despite the Russia-Ukraine conflict and Covid-19-related restrictions on travel. International travel was the key factor driving the growth in demand. In comparison to April 2021, the demand for air travel in April this year observed an increase of 78.7%. This was also higher than the YoY increase of 76% recorded in March 2022. The demand was evaluated in revenue passenger kilometers (RPKs). According to IATA, the global number of passengers is expected to increase to 3.4 billion in 2022, up from 2.3 billion in 2021. At the same time, the International Travel and Health Insurance Journal (ITIJ) thinks that global travel expenditures will increase by 94% in 2022.
Travel demand is expected to hold up or even improve during the second half of 2022 as inflation has started to show signs of coming under control. Analysts believe the Federal Reserve would no longer have to resort to aggressive interest rate hikes to combat inflation. Strong demand for traveling for leisure and business purposes during the summer helped airlines increase fares and counter the impact of higher costs.
However, there is a significant gap between demand and supply in the airline industry due to capacity-related constraints. During the peak of the summer season, the cancellation rate jumped to 3% – 4% as opposed to the pre-pandemic level of less than 1%. Airlines have been forced to decrease the number of flights and make expensive staff adjustments to avoid cancellations and delays. Companies are working on restoring their capacity to the pre-pandemic level but facing constraints due to staff shortages. To counter this issue, Delta Air Lines, Inc. (NYSE:DAL) plans to spend $700 million on overtime and premium pay this year, reflecting an increase of 50% from 2019.
Path to Recovery
According to IATA, airline companies globally are expected to generate a cumulative loss of $9.7 billion in 2022. The losses for the airline industry have narrowed from $137.7 billion during the peak of the COVID-19 pandemic in 2020 and $42.1 billion in 2021. IATA expects airline operators to reach profitability by 2023 and anticipates the recovery in the airline industry to be long-lived. IATA Director General Willie Walsh reiterated this as he said that the demand recovery is not “a flash in the pan,” and there is a long way to go before thinking about a demand cliff.
While there is still considerable economic uncertainty, the airline industry is nevertheless optimistic that a rebound to 2019 demand levels is likely to occur within the next two to three years. The propensity for air travel is expected to be boosted by the uplifting of travel restrictions, higher vaccination rates, and lack of vacations in the last two years, causing a pent-up demand. Notable companies like Southwest Airlines Co. (NYSE:LUV), Delta Air Lines, Inc. (NYSE:DAL), and United Airlines Holdings, Inc. (NASDAQ:UAL) are gaining investors’ attention amidst these changing circumstances.
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Our Methodology
We have looked into the business fundamentals of these companies in the current economic circumstances to assess how they would fare in case of further headwinds. Furthermore, we have analyzed the companies’ growth plans to achieve pre-pandemic efficiency levels. The analyst ratings were used to observe the overall market sentiment on these stocks. We utilized Insider Monkey’s database of 912 hedge funds as of Q1 2022 to rank these stocks according to the level of hedge fund ownership.
Best Airline Stocks To Buy Now
10. Gol Linhas Aéreas Inteligentes S.A. (NYSE:GOL)
Number of Hedge Fund Holders: 12
Gol Linhas Aéreas Inteligentes S.A. (NYSE:GOL) is a Rio de Janeiro, Brazil-based low-cost airline for leisure and business travel purposes.
In a research note issued on July 19, Michael Linenberg at Deutsche Bank gave Gol Linhas Aéreas Inteligentes S.A. (NYSE:GOL) stock a target price of $6 with a Buy rating. The analyst anticipates that his assumptions behind the positive investment thesis will hold during Q2 and the second half of 2022. International travel throughout Latin America has received a boost as the restrictions related to the COVID-19 pandemic have started to ease, providing the impetus to leisure and business traveling. Linenberg thinks that 2022 would be considered a year where most of the border restrictions will be lifted. For July 2022, Gol Linhas Aéreas Inteligentes S.A. (NYSE:GOL) observed a significant jump across all metrics as average seat kilometers (ASK) soared by 42.6% YoY and total seats increased by 41.9% YoY.
As of Q1 2022, Gol Linhas Aéreas Inteligentes S.A. (NYSE:GOL) was held by 12 hedge funds.
9. Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (NYSE:VLRS)
Number of Hedge Fund Holders: 15
Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (NYSE:VLRS) or Volaris is a Mexican low cost airline that serves Central and South America, Mexico and the US.
In July 2022, the company observed an increase in average seat miles (ASMs) by 28.7% YoY. The low-cost airlines are expected to be a beneficiary of global economic uncertainty as travelers would be forced to trade down for economical fares. Experts think that the toughest of times have passed for Volaris.
Michael Linenberg at Deutsche Bank gave the stock a Buy rating with a target price of $18 in a note issued to investors on July 25. The analyst highlighted that the company faced record high jet fuel prices during Q2 2022, resulting in a slim operating loss compared to a stellar operating profit reported during the same period last year. However, with the global fuel prices declining, Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (NYSE:VLRS) is expected to continue on its growth trajectory.
Of the 912 hedge funds in Insider Monkey’s database, 15 funds held a stake worth over $337 million in Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (NYSE:VLRS) as of Q1 2022.
8. Viasat, Inc. (NASDAQ:VSAT)
Number of Hedge Fund Holders: 17
Viasat, Inc. (NASDAQ:VSAT) is a Carlsbad, California-based high-speed internet provider to aircraft through satellites.
Viasat, Inc. (NASDAQ:VSAT) stock provides exposure to the global airline industry and is not limited to a certain region. Experts claim that the internet connectivity provided by Viasat, Inc. (NASDAQ:VSAT) is twice as fast as the internet provided by other airline companies.
While Viasat, Inc. (NASDAQ:VSAT) missed revenue estimates for Q2 2022, it was able to surpass the adjusted EPS estimate for the period. Revenue increased by 2% YoY to $678.22 million but failed to surpass the consensus forecast of $704.64 million. However, Viasat, Inc. (NASDAQ:VSAT) reported an adjusted EPS of 14 cents as opposed to analysts’ forecast of an adjusted loss per share of three cents.
In line with its globalization strategy, Viasat, Inc. (NASDAQ:VSAT) opened a new office in Hyderabad, India, in August. Viasat, Inc.’s (NASDAQ:VSAT) ongoing expansion initiatives are advanced by this new facility, which also increases the company’s footprint and allows it to continue utilizing the critical engineering and business skills of the local populations. The Hyderabad branch will focus on cutting-edge solutions for broadband delivery from space.
Overall, 17 hedge funds held a stake in Viasat, Inc. (NASDAQ:VSAT) as of Q1 2022.
7. SkyWest, Inc. (NASDAQ:SKYW)
Number of Hedge Fund Holders: 22
SkyWest, Inc. (NASDAQ:SKYW) is a St. George, Utah-based regional airline that operates on behalf of a mainline partner airline in the region. The airline has contracts with Alaska Air Group, Inc. (NYSE:ALK), Delta Air Lines, Inc. (NYSE:DAL), and United Airlines Holdings (NYSE:UAL).
SkyWest, Inc. (NASDAQ:SKYW) is expected to improve its employee retention rate by 2024, which will allow the company to increase asset utilization to levels similar to those before the pandemic. Furthermore, the company intends to launch a new charter division that will operate CRJ200 aircraft with 30 seats instead of the typical 50. This will make it possible for this subsidiary to operate according to different rules, which will facilitate the hiring of pilots.
SkyWest, Inc. (NASDAQ:SKYW) reported better-than-expected Q2 2022 results. Revenue increased by 21.6% YoY to $799 million, outperforming analysts’ estimates of $723.24 million. The adjusted EPS for the period was posted at $1.07, which was 64 cents higher than the consensus estimates. In the last two years, SkyWest, Inc. (NASDAQ:SKYW) has been able to surpass revenue and adjusted EPS for all eight quarters. Following the results, SkyWest, Inc. (NASDAQ:SKYW) highlighted the strong demand for its services.
The number of hedge funds holding a stake in SkyWest, Inc. (NASDAQ:SKYW) increased from 16 in Q4 2021 to 22 in the first quarter of the year.
6. American Airlines Group Inc. (NASDAQ:AAL)
Number of Hedge Fund Holders: 28
American Airlines Group Inc. (NASDAQ:AAL) is a Fort Worth, Texas-based major airline.
According to some key metrics like fleet size and revenue passenger mile, American Airlines Group Inc. (NASDAQ:AAL) is considered the biggest airline in the world. The company received the first delivery of the 787 Dreamliner from Boeing (NYSE:BA) in August 2021. American Airlines Group Inc. (NASDAQ:AAL) also reiterated that the company intends to receive nine more planes from Boeing in 2022.
American Airlines Group Inc. (NASDAQ:AAL) posted its first post-pandemic profit during the Q2 2022 results published on July 21. Revenue increased by 80% YoY to $13.42 billion, reflecting a record increase for the airline. For Q3 2022, American Airlines Group Inc. (NASDAQ:AAL) anticipates revenue growth of 10% to 12% as compared to the pre-pandemic period.
As of Q1 2022, 28 elite funds reported owning a stake in American Airlines Group Inc. (NASDAQ:AAL).
In addition to American Airlines Group Inc. (NASDAQ:AAL), companies like Southwest Airlines Co. (NYSE:LUV), Delta Air Lines, Inc. (NYSE:DAL), and United Airlines Holdings, Inc. (NASDAQ:UAL) are also attracting hedge fund investment.
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Disclose. None. 10 Best Airline Stocks To Buy Now is originally published on Insider Monkey.
