The International Air Transport Association (“IATA”) released its forecast for airline industry profitability this week. According to the IATA, global industry net profit will increase 11.3% to $38.4 billion in 2018 with overall revenues expected to rise 9.4% from 2017 to $824 billion. While passenger numbers are slated to rise 6% to 4.3 billion, cargo is expected to increase 4.5% to 62.5 million tons.
Factors That Will Drive Profitability
As mentioned above, the IATA expects an increase in passenger numbers in 2018. Growing employment, an increase in travel plans, solid safety performance and the opening of more routes are some of the factors that will drive passenger numbers. Cargo numbers are also on the rise especially in areas like the Asia-Pacific region.
Although challenges do remain in the form of negative headlines, rising fuel and labor costs as well as infrastructure expenses, increasing revenues and lower interest payments will help drive net margin. The IATA expects the North American region to remain the strongest with net profits slated to rise 5.1% to of $16.4 billion in 2018.
5 Stock Picks
Based on the numbers provided by the IATA, the airlines industry looks well-positioned for a strong performance in 2018. Moreover, the Airlines segment enjoys a good Zacks industry rank (top 20% out of 256 industries). Here is a look at five top-ranked airline stocks.
GOL Linhas Aéreas Inteligentes SA (GOL - Free Report) : GOL Linhas, the largest group of transport services and air travel in Brazil, carries 33 million passengers on more than 700 daily flights to 63 destinations including 52 in Brazil and 11 in South America and the Caribbean. The company has a fleet of 120 Boeing 737 aircraft and enjoys the largest share of business traffic in Brazil with its prospects remaining strong as the economy and demand continue to improve.
The company intends to continue focusing on optimizing the utilization of its fleet next year and will begin aircraft replacement with the delivery of the first five Boeing 737 MAX 8 aircraft in the second half of 2018.
GOL Linhas, a Zacks Rank #1 (Strong Buy) stock, has surpassed earnings expectations in two of the last three quarters with an average surprise of 190.1%. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 120% upward over the last 30 days while the Zacks Consensus Estimate for next-year earnings is up 7.5% over the last 30 days.
Shares of GOL Linhas are up 230.8% year to date, significantly outperforming the 9.4% rally of the industry it belongs to.
You can see the complete list of today’s Zacks #1 Rank stocks here.
International Airlines Group (ICAGY - Free Report) : International Airlines Group is one of the largest airline groups in the world with a fleet of 547 aircraft flying to 268 destinations and carrying more than 100 million passengers every year. ICAGY is the parent company of Aer Lingus, British Airways, Iberia and Vueling.
The company posted a positive earnings surprise of 161% in the third quarter of 2017. Shares of the Zacks Rank #1 stock are up 54.3% year to date, significantly outperforming the 9.4% rally of the industry it belongs to.
Azul SA (AZUL - Free Report) : Azul is the largest airline in Brazil by number of cities and departures, with 755 daily flights to 104 destinations. As of Sep 30, 2017, the company had a fleet of 118 aircraft and a network of 197 non-stop routes. The company is working on replacing older generation aircraft with new generation aircraft to further strengthen its margins going forward. Other focus areas include growing the TudoAzul loyalty program and expanding ancillary revenue.
Azul is a Zacks Rank #2 (Buy) stock. The company’s shares are up 13.5% year to date, outperforming the 9.4% rally of the industry it belongs to.
Deutsche Lufthansa AG (DLAKY - Free Report) : The Lufthansa Group is a global aviation group with several segments including the Passenger Airline Group, Logistics, MRO, Catering and Others. The company’s portfolio includes premium network airlines, profitably growing P2P airlines and world leading aviation services.
A Zacks Rank #2 company, the Lufthansa Group’s shares are up 165.7% year to date, outperforming the 9.4% rally of the industry it belongs to.
SkyWest, Inc. (SKYW - Free Report) : SkyWest, the holding company for two scheduled passenger airline operations and an aircraft leasing company, operates almost 2,000 flights every day to 226 destinations across North America. While SkyWest Airlines has partnerships with large network carriers like United Airlines, Delta Air Lines, American Airlines and Alaska Airlines, ExpressJet Airlines has partnerships with United, Delta and American.
SkyWest, a Zacks Rank #2 stock, has a pretty good earnings track record with the company surpassing expectations in each of the last four quarters with an average surprise of 10.8%. Estimated earnings growth for the current year is 21.7%. SkyWest’s shares are up 41% year to date, significantly outperforming the 9.4% rally of the industry it belongs to.
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