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Zacks Industry Outlook Highlights United Airlines, American Airlines and Alaska Air Group
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For Immediate Release
Chicago, IL – March 15, 2023 – Today, Zacks Equity Research discusses United Airlines (UAL - Free Report) , American Airlines (AAL - Free Report) and Alaska Air Group (ALK - Free Report) .
Upbeat air-travel demand, both domestic and international, is aiding stocks in the Zacks Airline industry. Driven by strong air-traffic, passenger revenues, which account for the bulk of most airlines' top lines, are seeing an uptick. Airline players like United Airlines, American Airlines and Alaska Air Group are likely to benefit from robust demand for air travel.
However, high fuel costs are limiting bottom-line growth. Moreover, the labor crunch that is currently being faced by the airline industry is another woe.
About the Industry
The Zacks Airline industry houses players engaged in transporting passengers and cargo to various destinations globally. Most operators maintain a fleet of multiple mainline jets in addition to several regional planes. Operations are aided by their regional airline subsidiaries and third-party regional carriers.
Additionally, industry players utilize their respective cargo divisions to offer a wide range of freight and mail services. The players invest substantially to upgrade technology. The industry, apart from comprising legacy carriers, includes low-cost players. The well-being of companies in this group is linked to the health of the overall economy.
For example, the aviation space was one of the worst pandemic-hit corners, with passenger revenues taking a beating. However, air-travel demand is extremely rosy now. The focus on boosting cargo revenues is another positive.
Key Themes Governing the Airline Industry
Buoyant Air Traffic: The stronger-than-expected recovery in air-travel demand from pandemic lows is a huge positive for the industry, which was one of the worst-hit industries in the peak COVID-19 period. People are again resorting to air travel with the resumption of normal activities. The removal of COVID-related restrictions is aiding air travel, which is now strong on the international front as well.
Recently, the United States ended COVID testing requirements for passengers from China. The restrictions had been in effect since Jan 5, following the renewed outbreak in China. This rosy scenario with respect to air traffic is likely to stay as is evident from the International Air Transport Association's (IATA) expectation of airlines returning to profitability in 2023.
Focus on Cargo Revenues Bodes Well: The focus of airlines on boosting cargo revenues bodes well for top-line growth, especially in the current scenario where passenger revenues are rebounding strongly from the pandemic lows. Highlighting the focus on cargo revenues, United Airlines' revenues from cargo improved 49.4% in fourth-quarter 2022 from fourth-quarter 2019 actuals to $472 million. Per IATA's forecast, cargo revenues in 2023 are expected to be $149.4 billion, which though lower than the 2022 levels are still $48.6 billion higher than the 2019 actuals.
High Costs: Increased operating costs are limiting bottom-line growth. Costs will likely continue to be steep going forward due to high fuel and labor costs. The spike in fuel costs (oil price was up 6.7% in the October-December period) is not a welcome development as expenses on fuel represent a major input cost for airlines. Moreover, with U.S. airlines grappling with pilot shortage, the bargaining power of this labor group has increased. As a result, we have seen pay-hike deals being inked recently in the space. This will result in an increase in labor costs.
Zacks Industry Rank Indicates Sunny Prospects
The Zacks Airline industry is a 29-stock group within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #42, which places it in the top 17% of 250 plus Zacks industries.
The group's Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry's positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group's earnings growth potential. The industry's earnings estimates for 2023 have moved up 13.5% since September 2022.
Before we present a few stocks that you may want to add to your portfolio, let's look at the industry's recent stock-market performance and its valuation picture.
Industry Outperforms S&P 500 & Sector
The Zacks Transportation - Airline industry has outperformed the Zacks S&P 500 composite as well as the broader Transportation sector over the past year.
The industry has declined 3.7% over this period compared with the S&P 500's depreciation of 10.9% and the broader sector's decrease of 10.3%.
The Valuation Picture
The price/sales (P/S) ratio is often used to value airline stocks. The industry currently has a forward 12-month P/S of 0.40X compared with the S&P 500's 3.35X. It is also below the sector's forward-12-month P/S of 1.57X.
Over the past five years, the industry has traded as high as 1.02X, as low as 0.33X and at the median of 0.67X.
3 Transportation - Airline Stocks to Buy
All three stocks discussed below presently carry a Zacks Rank #2 (Buy).
United Airlines has a market capitalization of $15.97 billion and is presently based in Chicago. The gradual increase in air-travel demand (particularly for leisure) is aiding UAL. However, high fuel costs are affecting its bottom line.
Over the past 60 days, the Zacks Consensus Estimate for UAL's 2023 earnings has been revised 22.1% upward. United Airlines surpassed the Zacks Consensus Estimate for earnings in two of the last four quarters (missing twice), the average beat being 5.42%.
American Airlines is based in Fort Worth, TX and has a market capitalization of $9.67 billion, presently. The gradual increase in air-travel demand (particularly for leisure) is aiding AAL as well. However, high fuel costs are hurting the bottom line.
Over the past 60 days, the AAL stock has seen the Zacks Consensus Estimate for 2023 earnings being revised 24.3% upward. American Airlines surpassed the Zacks Consensus Estimate for earnings in three of the last four quarters (missing once), the average beat being 7.79%.
Alaska Air Group too is being aided by the improved air-travel-demand situation. For the fourth quarter of 2022, ALK reported better-than-expected results. It expects a 23-29% increase in the top line during first-quarter 2023.
ALK has been increasing its capacity to meet the upbeat demand. Capacity is expected to increase 11-14% in the first quarter of 2023. The Zacks Consensus Estimate for Alaska Air's first-quarter earnings has been revised upward by 29.4% in the past 60 days. ALK has a market capitalization of $5.62 billion, presently.
Why Haven't You Looked at Zacks' Top Stocks?
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights United Airlines, American Airlines and Alaska Air Group
For Immediate Release
Chicago, IL – March 15, 2023 – Today, Zacks Equity Research discusses United Airlines (UAL - Free Report) , American Airlines (AAL - Free Report) and Alaska Air Group (ALK - Free Report) .
Industry: Airlines
Link: https://www.zacks.com/commentary/2065295/3-airline-stocks-to-buy-now-amid-buoyant-air-travel-demand
Upbeat air-travel demand, both domestic and international, is aiding stocks in the Zacks Airline industry. Driven by strong air-traffic, passenger revenues, which account for the bulk of most airlines' top lines, are seeing an uptick. Airline players like United Airlines, American Airlines and Alaska Air Group are likely to benefit from robust demand for air travel.
However, high fuel costs are limiting bottom-line growth. Moreover, the labor crunch that is currently being faced by the airline industry is another woe.
About the Industry
The Zacks Airline industry houses players engaged in transporting passengers and cargo to various destinations globally. Most operators maintain a fleet of multiple mainline jets in addition to several regional planes. Operations are aided by their regional airline subsidiaries and third-party regional carriers.
Additionally, industry players utilize their respective cargo divisions to offer a wide range of freight and mail services. The players invest substantially to upgrade technology. The industry, apart from comprising legacy carriers, includes low-cost players. The well-being of companies in this group is linked to the health of the overall economy.
For example, the aviation space was one of the worst pandemic-hit corners, with passenger revenues taking a beating. However, air-travel demand is extremely rosy now. The focus on boosting cargo revenues is another positive.
Key Themes Governing the Airline Industry
Buoyant Air Traffic: The stronger-than-expected recovery in air-travel demand from pandemic lows is a huge positive for the industry, which was one of the worst-hit industries in the peak COVID-19 period. People are again resorting to air travel with the resumption of normal activities. The removal of COVID-related restrictions is aiding air travel, which is now strong on the international front as well.
Recently, the United States ended COVID testing requirements for passengers from China. The restrictions had been in effect since Jan 5, following the renewed outbreak in China. This rosy scenario with respect to air traffic is likely to stay as is evident from the International Air Transport Association's (IATA) expectation of airlines returning to profitability in 2023.
Focus on Cargo Revenues Bodes Well: The focus of airlines on boosting cargo revenues bodes well for top-line growth, especially in the current scenario where passenger revenues are rebounding strongly from the pandemic lows. Highlighting the focus on cargo revenues, United Airlines' revenues from cargo improved 49.4% in fourth-quarter 2022 from fourth-quarter 2019 actuals to $472 million. Per IATA's forecast, cargo revenues in 2023 are expected to be $149.4 billion, which though lower than the 2022 levels are still $48.6 billion higher than the 2019 actuals.
High Costs: Increased operating costs are limiting bottom-line growth. Costs will likely continue to be steep going forward due to high fuel and labor costs. The spike in fuel costs (oil price was up 6.7% in the October-December period) is not a welcome development as expenses on fuel represent a major input cost for airlines. Moreover, with U.S. airlines grappling with pilot shortage, the bargaining power of this labor group has increased. As a result, we have seen pay-hike deals being inked recently in the space. This will result in an increase in labor costs.
Zacks Industry Rank Indicates Sunny Prospects
The Zacks Airline industry is a 29-stock group within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #42, which places it in the top 17% of 250 plus Zacks industries.
The group's Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry's positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group's earnings growth potential. The industry's earnings estimates for 2023 have moved up 13.5% since September 2022.
Before we present a few stocks that you may want to add to your portfolio, let's look at the industry's recent stock-market performance and its valuation picture.
Industry Outperforms S&P 500 & Sector
The Zacks Transportation - Airline industry has outperformed the Zacks S&P 500 composite as well as the broader Transportation sector over the past year.
The industry has declined 3.7% over this period compared with the S&P 500's depreciation of 10.9% and the broader sector's decrease of 10.3%.
The Valuation Picture
The price/sales (P/S) ratio is often used to value airline stocks. The industry currently has a forward 12-month P/S of 0.40X compared with the S&P 500's 3.35X. It is also below the sector's forward-12-month P/S of 1.57X.
Over the past five years, the industry has traded as high as 1.02X, as low as 0.33X and at the median of 0.67X.
3 Transportation - Airline Stocks to Buy
All three stocks discussed below presently carry a Zacks Rank #2 (Buy).
United Airlines has a market capitalization of $15.97 billion and is presently based in Chicago. The gradual increase in air-travel demand (particularly for leisure) is aiding UAL. However, high fuel costs are affecting its bottom line.
Over the past 60 days, the Zacks Consensus Estimate for UAL's 2023 earnings has been revised 22.1% upward. United Airlines surpassed the Zacks Consensus Estimate for earnings in two of the last four quarters (missing twice), the average beat being 5.42%.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here
American Airlines is based in Fort Worth, TX and has a market capitalization of $9.67 billion, presently. The gradual increase in air-travel demand (particularly for leisure) is aiding AAL as well. However, high fuel costs are hurting the bottom line.
Over the past 60 days, the AAL stock has seen the Zacks Consensus Estimate for 2023 earnings being revised 24.3% upward. American Airlines surpassed the Zacks Consensus Estimate for earnings in three of the last four quarters (missing once), the average beat being 7.79%.
Alaska Air Group too is being aided by the improved air-travel-demand situation. For the fourth quarter of 2022, ALK reported better-than-expected results. It expects a 23-29% increase in the top line during first-quarter 2023.
ALK has been increasing its capacity to meet the upbeat demand. Capacity is expected to increase 11-14% in the first quarter of 2023. The Zacks Consensus Estimate for Alaska Air's first-quarter earnings has been revised upward by 29.4% in the past 60 days. ALK has a market capitalization of $5.62 billion, presently.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.