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 SkyWest, Inc. (NASDAQ:SKYW) 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)
A commercial plane flying overhead with a scenic view of the region in the background.
SkyWest, Inc. (NASDAQ:SKYW)
% of shares shorted: 3.79%
Number of Hedge Fund Holders: 28
The Best Airline Stock To Buy According To Short Sellers is SkyWest Inc. (NASDAQ:SKYW), which provides regional jet services for millions of travelers to over 200 destinations in North America via partnerships with major carriers and regional aircraft. SkyWest coordinates its operations through SkyWest Airlines and SkyWest Leasing and runs 1,800 flights per day with a fleet of more than 350 aircraft.
The Utah-based company operates through three segments: SkyWest Airlines, SkyWest Charter, and SkyWest Leasing. SkyWest Airlines is the primary business of the company.
After the pandemic, SkyWest Inc. (NASDAQ:SKYW) was the strongest American regional airline, with increased revenue and profit margins resulting from better asset utilization.
Moreover, it has a strong partnership model and adept handling of significant issues like labor shortages. The company’s competitiveness and prospective gains in market share in the regional market are strengthened by its capacity purchase agreements and strategic positioning.
Deutsche Bank’s Michael Linenberg has maintained a Buy rating on the American regional airline, with a $101.00 price objective. Linenberg’s confidence stems from SkyWest’s impressive Q2 results, where the airline beat analysts’ expectations with improved operating margins and an EPS of $1.82, exceeding the $1.70 target.
Better pilot availability and improved operational efficiency are made apparent by the company’s noteworthy block-hour production rise YoY. Additionally, revenue exceeded projections, highlighting SkyWest’s strong financial position and steady development trajectory.
Linenberg cites improved captain retention and anticipated increases in block hours by the company as signs of future income growth. This increase is expected to be facilitated by the improvement in captain attrition, which will allow the company to make better use of its fleet, particularly its E175 aircraft.
Although there has been a little adjustment to the EPS for 2025 due to expected increases in maintenance expenditures, Linenberg still sees these as strategic investments that should pay off in 2026. As per the analyst, the stock is more appealing as a long-term investment because of its present value ($76.29), which indicates tremendous upside potential.
Overall, SkyWest is a compelling investment opportunity due to its strong financial sheet, possible improvement in margin and free cash flow, and improved pilot staffing. The average 12-month price objective set by analysts for SkyWest stock is $76.67, indicating a 0.50% gain from the stock’s current price of $76.29.
Stephen White’s SW Investment Management is one of the most prominent shareholders in the company as of Q2, 2024, with 600,000 shares worth $49.24 million.
Overall SKYW ranks 1st on our list of the best airline stocks to buy according to short sellers. While we acknowledge the potential of SKYW 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 SKYW 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.
