Summer is heating up, and families across the globe will be looking to pack their bags for a well-deserved vacation. Since it could be the first full summer travel season since 2019, demand is likely to be significantly higher. Hence, it might be a great time to load up on the top airline stocks to buy on the dip to take advantage of the rising demand.
However, after two arduous years of battling the pandemic-led headwinds, airliners face another behemoth in inflation. Gasoline prices are skyrocketing, putting immense pressure on most businesses’ bottom lines.
Nevertheless, people still need to fly, and airline stocks will likely thrive over the long term. Recent upgrades show this to second-quarter sales projections by most airliners.
|DAL||Delta Air Lines||$31.79|
|ATSG||Air Transport Services Group||$29.19|
|ALK||Alaska Air Group||$42.59|
Delta Air Lines (DAL)
Like its peers, Delta Air Lines (NYSE:DAL) faces a tough business environment with rising oil prices and staffing troubles.
Nevertheless, it’s set for a strong showing during the second quarter, generating upwards of $12.5 billion in sales on operating margins of 13% to 14%. Though its margins are below 17%, it posted in the second quarter of 2019, and they are still remarkable considering the elevated fuel prices.
Perhaps another area where Delta excels is its fleet strategy. With the current inflationary environment, airliners must look for ways to control costs. Delta recently replaced many of its planes with fuel-efficient Airbus models.
These are likely to burn roughly 20% less fuel than other options in the market and could contribute immensely to boosting operating income in the future. Moreover, DAL stock trades at attractive price levels, offering a compelling entry point for long-term investors.
Southwest Airlines (LUV)
Dallas, Texas-based airline giant Southwest Airlines (NYSE:LUV) delivered a blowout result in its first quarter. It reported a massive 129% increase in sales on a year-over-year basis to $4.7 billion, comfortably ahead of analyst estimates.
Reported sales came in at roughly 91% of pre-pandemic levels, while passenger revenues were up 141% from the prior-year period. Hence, the results suggest that the pandemic is well and truly in the rear-view mirror or LUV.
Furthermore, it expects second-quarter revenues to rise between 12% and 15% from the same period in 2019. This is a significant bump from the previous projection of 8% to 12% a few months ago.
According to the airline’s management, revenues will “more than offset” the higher cost. Moreover, it “expects solid profits and operating margins” in the upcoming quarter and for the full year.
Air Transport Services Group (ATSG)
Air Transport Services Group (NASDAQ:ATSG) provides air cargo transportation services in the U.S. and internationally.
ATSG stock’s one-year performance has been relatively solid, boosted by its strong operating performance. eCommerce has been a key driver for its business and will continue to boost sales. Most companies will have learned the lesson about the reliability of slower delivery options.
It recently posted its first-quarter results that comfortably surpassed analyst estimates. Its first-quarter non-GAAP earnings per share of 56 cents beat estimates by 16 cents. Moreover, sales came in at $485.86 million, a 29.2% improvement from the prior-year period and a comfortable $10.93 billion beat.
Looking ahead, it expects a record adjusted EBITDA of $640 million, up a substantial $100 million from last year. Moreover, it projects capital expenditures of $590 million to boost its fleet. Though its cash flows have been negative for the past five years, it has avoided taking up debt to fund its fleet expansion.
COPA Holdings (CPA)
Panamanian carrier COPA Holdings (NYSE:CPA) seems to be back to winning ways with its recently reported first-quarter results. Omicron played spoilsport, but overall, its capacity was 87.6% of the capacity flown during the first quarter of 2019.
Moreover, revenues skyrocketed to $571.6 million, representing a 207.8% bump from the same quarter last year. It also reported a healthy net profit of $19.8 million, reflecting fleet simplification and reduced headcounts.
Copa estimates that demand is strong enough to operate at 96% of pre-pandemic levels in the second quarter. Pent-up demand remains robust, and business travel is expected to come back in a big way in the upcoming quarters. Therefore, there’s plenty of upside to CPA stock ahead.
Allegiant Air (ALGT)
Allegiant Air (NASDAQ:ALGT) has been one of the more consistent performers in the airline sector. I feel it’s been more effective in managing its operations, which has paid dividends in the past couple of years. Year-over-year revenue growth is over 120% as it looks to pivot from the pandemic-induced slowdown.
It recently came out with a solid update for May, where system passengers were up 40.6% from the prior-year period. Departures were up more than 9%, while service revenue passenger miles increased 47.3% from the same period last year. Demand strength is impressive due to a persistent increase in forward bookings.
Moreover, bookings into the off-peak season are trending higher in 2019. Additionally, pent-up demand is vigorous enough to see record-breaking revenue results. Allegiant is aiming for a massive $600 million in sales in the second quarter, representing roughly 28% growth from the prior year.
Alaska Air Group (ALK)
Alaska Air Group (NYSE:ALK) is perhaps the carrier that weathered the coronavirus crisis the best. Its management was proactive in managing its debt load without diluting equity and preparing for the rebound in sales.
Similar to its peers, it is now enjoying strong growth in sales, but its relatively low debt burden provides it flexibility which most of its peers lack at this time. Capacity is back to almost 100% of pre-pandemic levels, and it has the impetus to push on at a rapid pace. Moreover, with historically lower fares than its competition, it should do well in a recessionary environment.
Alaska’s outstanding share count hasn’t changed much, while it has paid its debt at a healthy pace. Debt levels are down over 19% from 2020 to 2021 and continue to drop with every passing quarter. All the while, its cash equivalents have risen over 105% from 2019 to 2021. Therefore, its financial flexibility gives it a massive edge over its peers.
Ryanair (NASDAQ:RYAAY) is a leading European low-cost carrier and the largest airline in the region regarding passengers. It’s effectively navigated the headwinds over the past couple of years and is now progressing towards profitability.
During the first quarter, it posted a net loss of €355 million, significantly improving from the €1 billion it made in the previous year’s first quarter. Moreover, revenues almost tripled to a whopping €4.8 billion.
The airliner expects to be reasonably profitable for the year 2022/2023 and continue paying off its debt. Net debt has decreased to €1.45 billion from €2.28 billion last year. It expects to be net cash positive by March 2024, despite investing €4.3billion over the next couple of years. Also, to tackle the inflationary pressures, it has raised its fares by a 9%. Such a decision is likely to help it maintain its margins.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.