We recently published a list of the 10 Best Airline Stocks to Buy For 2024. Since JetBlue Airways Corporation (NASDAQ:JBLU) ranks 9th on the list, it deserves a deeper look.
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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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.
Overall, JetBlue Airways Corporation (NASDAQ:JBLU) ranks 9th on Insider Monkey’s list of 10 Best Airline Stocks to Buy For 2024. You can visit 10 Best Airline Stocks to Buy For 2024 to see other stocks in the list. While we acknowledge the potential of JetBlue Airways Corporation (NASDAQ:JBLU), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than JetBlue Airways Corporation (NASDAQ:JBLU) 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.