We recently compiled a list of the 10 Best Airline Stocks To Buy According To Short Sellers. In this article, we are going to take a look at where Frontier Group Holdings, Inc. (NASDAQ:ULCC) stands against the other airline stocks.
The COVID-19 pandemic’s impact on travel caused an alarming 54.1% drop in the airline industry’s revenue from $838 billion in 2019 to $384 billion in 2020, according to the International Air Transport Association (IATA). However, the industry has subsequently risen substantially, with annual revenue estimated to reach $996 billion by 2024, representing 18.8% growth from 2019 and a 159% recovery from the pandemic low.
On the other hand, the Business Research Company projects that the global airline market will grow at a compound annual growth rate of 8.2%, from $523.04 billion in 2023 to $566.06 billion in 2024. Whereas in the upcoming years, a significant expansion in the size of the airline industry is anticipated at a CAGR of 8.8% to $794.61 billion in 2028. According to the aforementioned research, the increase in the number of air passengers is fueling the growth of the airline industry. For example, in March 2023, the US government’s Bureau of Transportation Statistics reported that the number of passengers carried by US airlines rose by 30% from 658 million in 2021 to 853 million in 2022. Regionally, Asia-Pacific was the world’s largest airline market in 2023, and it is also projected to be the fastest-growing region in the airline market study throughout the forecast year.
Furthermore, the booming airline market is also being driven by the growing tourism market. For instance, in December 2022, the New Zealand government ministry, the Ministry of Business, Innovation, and Employment, reported that tourism spending in the country hit $26.5 billion, up 2.7% from $704 million a year before. Most importantly, arrivals of foreign visitors to New Zealand jumped by 335.3% to 229,370.
Consumer confidence in leisure travel is still high. Jamie Baker, analyst for aircraft leasing and U.S. airlines states: “Our prevailing thesis is that premium and international demand for air travel remains in the lead.” Nonetheless, limited capacity and lower costs are two challenges that airlines around the globe are dealing with. On the other hand, in China, the rate of domestic passenger yield is anticipated to stay high, while the rate of outbound tourism is projected to increase in the upcoming months. The IATA has raised the industry’s projected profit for 2024 in Asia Pacific by almost 18%. According to its longer-term projections, Asia Pacific will have the fastest global growth in air travel demand, with a passenger CAGR of 5.3% over the next 20 years.
Meanwhile, the US airlines have emphasized debt reduction, which should assist in strengthening their balance sheets and credit ratings over time. The domestic industry reported a total debt of $143 billion at the end of 2023, a decline of around 15% from 2021 levels. Investors who keep a long-term perspective and diversify their portfolios may gain from the industry’s revival and expansion in the future years.
Methodology:
We sifted through holdings of airline ETFs and online rankings to form an initial list of 20 airline stocks. Then we selected the 10 stocks that had the lowest percentage of their shares shorted. The stocks are ranked in ascending order of the lowest percentage of their shares shorted. We’ve also mentioned the number of hedge funds that have long positions in these stocks as of Q2, 2024.
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)
An Airbus A320ceos ready to take off from the runway of the company’s corporate airport.
Frontier Group Holdings, Inc. (NASDAQ:ULCC)
% of shares shorted: 6.43%
Number of Hedge Fund Holders: 16
Low-cost passenger airline services are offered to leisure passengers by Frontier Group Holdings, Inc. (NASDAQ:ULCC). About 136 Airbus single-aisle aircraft, including eight A320ceos, 82 A320neos, 21 A321ceos, and 25 A321neos, make up its fleet. The company provides services to approximately 90 airports in the US and to other locations in the Americas.
In an attempt to maintain its status as America’s low-cost airline operator after a failed merger with Spirit Airlines, Frontier Group Holdings Inc. intends to increase its capacity by 10%-20% per year for the next ten years. To gain market share in the face of an economic downturn and competitors’ capacity reductions, the Colorado-based airline, which is 82% owned by Indigo Partners, plans to lower tickets, increase non-ticket revenue, and utilize its pilot pool.
The company announced a better-than-expected profit for the second quarter of 2024. This was fueled by successful cost-control initiatives like network simplification and profitable sale and leaseback transactions. LSEG data shows that Frontier earned an adjusted 14 cents per share, above Wall Street’s projected earnings of 12 cents per share. The airline’s cost per available seat mile (CASM) came in at 8.98 cents, down 6% from the prior year.
The domestic market has experienced an oversupply of seats, pushing rates, especially at the lower end of the market, despite a strong summer travel season, with U.S. airlines forecast to transport 271 million passengers per A4A, a 6.3% rise from last year. As a consequence, Frontier declared that 54 Airbus jet deliveries will now take place between 2029 and 2031 as opposed to the original 2025-2028 timeframe. This is a sensible approach given that other airlines, such as JetBlue, have also delayed aircraft deliveries to increase profitability.
Barclays analyst Brandon Oglenski maintained a Buy rating and a $6.00 price target on Frontier Group Holdings. However, the price target was lowered from $6.50 to $5.50 by Bank of America Securities analyst Andrew Didora, who maintained a Hold rating.
With its planned delay of aircraft deliveries, good profit margin, and solid cost control measures, Frontier Group Holdings, Inc. (NASDAQ:ULCC) is one of the Best Airline Stocks To Buy According To Short Sellers, with ONLY 6.43% of shares shorted.
Overall ULCC ranks 8th on our list of the best airline stocks to buy according to short sellers. While we acknowledge the potential of ULCC as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ULCC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.