Sizzling Summer For Airlines As Investors Scoop Up Stocks Following Strong Earnings

The U.S. Travel Association reported that air travel numbers have remained above the post-pandemic travel boom experienced last year, with travel demand up 10% in May 2023, compared to the same month in 2022.

The month of July experienced similar demand, with airlines witnessing an uptick in passenger count closer to the July Fourth weekend. On Friday,June 30, the Transportation Security Administration (TSA) screened nearly 2.9 million passengers, penning down a record for a single day.

Multiple indications have shown that the airline industry, as a whole, is on a strong path to recovery following the turndown experienced during the pandemic. Millions of passengers are now booking flights or simply cashing in on reward points and making up for lost time.

The seemingly positive return of travel, both domestic and international, has seen some airlines posting record-breaking earnings, giving investors an indication that travel is making a strong comeback, and stocks could experience further improvement in the coming months.

Airline Stocks Flying High

Driven largely by pent-up demand, and a decrease in fuel costs, airline operators have reported some of their strongest earnings to date following the pandemic.

However, challenging conditions remain, as inflation and soaring interest rates could hinder consumer’s disposable income, and further drive up operating costs for airlines.

Yet, following recent quarterly earnings, it seems that some airliner carriers have experienced their best performance since before the Covid lockdowns, leaving investors with an opportunity to scoop up cheap stocks and further ride out the strong rebound of air travel.

Delta Airlines

The Atlanta-based airline, Delta (NYSE: DAL) recently reported Q2 2023 earrings performance, and investors were pleased with the numbers the company presented them with.

Delta reported that demand for international travel tickets, and premium seats such as first class were among the highest in demand. A decrease in fuel prices further helped the company decrease fuel costs by 22% during the quarter.

The positive turnaround led the company to increase its 2023 earrings forecast to an adjusted $6 to $7 per share, up from the previous forecast of $5 to $6 per share.

Analysts have called Delta a cash machine, with the company generating more than $2.95 billion of free cash flow for the first half of the year. The performance means that the company is essentially on target to meet its full-year free cash flow target of $3 billion.

On the stock market, DAL shares have already risen by 42% this year, although in recent weeks, following their earnings call, stocks have slightly retreated again.

Delta has dazzled investors, especially low-risk investors looking for long-term opportunities in the market. Share prices have been stabilizing between the $45.72 – $46.33 range, making it a cheap stock pick, with sizable earnings potential.

The ongoing rebound of air travel, coupled with strong demand, lower operational costs, and overall positive business operations could lead Delta to potentially increase its earnings-per-share (EPS) above $7 in the coming years.

United Airlines

United (NASDAQ: UAL) has been keeping investors locked and loaded, following its recent quarterly earnings, and its corporate business strategy that sees an additional 127 new nonstop flights across the U.S. and the addition of several new corporate partners.

In July, the company announced that it has raised investment power to more than $200 through various startups, and added eight new corporate partners. The news comes five months after the company launched its efforts to increase the domestic supply of Sustainable Aviation Fuel (SAF)

For the Q2 2023 period, the company witnessed revenues jumping by 17.1% year-over-year (YOY) to $14.8 billion. Adjusted operating income grew by 140% to $2.38 billion compared to the same quarter last year.

Some Wall Street analysts expect the company to increase its Q3 2023 revenue a further 11.8%, to more than $14.40 billion. Most recent EPS has managed to surpass the previous four quarters, with an adjusted EPS of $4.14 per share, an improvement of 47.2% YOY.

AUL share prices are up by more than 45% to date, following its strong second quarter, however, during July, performance was down by 1.36%, although stocks have started trending upwards again in recent days.

Given United’s strong business diversification and strong earnings, it could be yet another record-shattering year for the airline and investors.

American Airlines

Airline operator of passenger and cargo freight, American Airlines (NASDAQ: AAL) recently posted its second-quarter earnings, however, while the company posted a 17% jump in operating revenue, shares of American slid in post-earnings calls by 5%.

Stocks fell slightly after the company’s Q2 2023 posting, as the company’s full-year guidance was below that of competitors, leaving investors unconvinced by the near-term performance of the airline.

The record quarterly revenue of $14.1 billion was a hard sell for many investors. The company did however manage to drive down its fuel costs by 35%, with second-quarter earnings of $1.81 per diluted share on $1.3 billion in net income.

The airline has raised its full-year adjusted EPS to guidance between $3 and $3.75 per diluted share, which was perhaps the straw that broke the camel’s back for some investors.

In post-earnings, stocks started to slide, before making headway up again, however, until mid-July stocks were trading below their 20-day moving average. Despite the sentiment, AAL is still on a strong uptrend, with a 31% increase year to date.

International Consolidated Airlines Group

The multinational airline carrier, International Consolidated Airlines Group (LON: IAG) based out in Harmondsworth, the United Kingdom, experienced a strong first half of the year, following the recent quarterly posting.

During the first six months of the year, ending June 30, the company posted revenue of more than $14.96 billion, an increase of 45.3% YOY. Other impressive postings were the $13.23 billion in cash, cash equivalents, and interest-bearing deposits the company has made over the last six months, translating into a 30.7% improvement YOY.

IAG has a strong track record for surpassing analysts’ estimates, already marking their winning streak, surpassing the EPS estimates in all four prior quarters. Furthermore, analysts are positive that the company will further boost its EPS during its third quarter, ending September 30.

On the stock market, the year-to-date performance of IAG is up by more than 33%, and July witnessed stocks gain more than 4.85%.

IAG is worth the consideration for investors that are looking for less risk exposure but want to invest their cash into stocks that provide investors with strong fundamentals.

Copa Holdings

Copa Holdings (NYSE: CPA) had a similarly positive second quarter, surpassing pre-pandemic earnings.

For the period, the company reported a net profit of $121 million, translating into $3.07 per share. This is above the same recorded period of 2019, which saw the company book $89 million in net profit or $2.11 per share.

The airline, which is based out in Panama in Central America, predominantly services the domestic region and offers more than 327 daily scheduled flights to more than 78 destinations in 32 different countries.

Looking at its total operating revenues, the airline posted $867 million, which is a net profit improvement of 435% YOY and EPS of $3.99 is up by 470%.

Stocks have continued their upward climb, rising 44% to date, and July improving by a further 5.89%.

The company has managed to keep its operating expenses low, while at the same time generating cash through increased flight options and looking to potentially add more destinations to its current routes in the coming years.

Final Thoughts

There’s enough evidence to show that airlines are making a strong comeback following the downturn during the last three years. While economic and geopolitical issues could continue to be a hurdle for some operators, those that can manage the increased passenger demand are in a comfortable position that would help stabilize their bottom lines, but also introduce a new golden era of air travel.