The Jets Airline ETF tracks firms within the commercial airline, aircraft manufacturing, and airport- and terminal-services industries. This is the first unconstrained summer travel season in three years, so airlines and airports are bracing for what is expected to be a particularly busy three months. Airlines, in fact, have recently upgraded their second-quarter revenue projections, citing higher than expected demand. Here are three airline stocks I’m keeping my eye on as we head into the busy summer season.
Southwest Airlines: an American low-cost leader
Southwest Airlines (NYSE: LUV) has the number-one position in 23 of the top 50 markets in the US, and the focus at present is on restoring the network to pre-pandemic levels. It’s also concentrating on maintaining its low-cost advantage, a task that includes coming up with more efficient flight plans, optimising maintenance planning and modernising its revenue-management system.
In December 2021 the company signed a nine-year credit-card co-brand agreement with Chase, which has already proved very lucrative. These initiatives are expected to add between $1bn and $1.5bn to earnings before interest and taxes (EBIT) by 2023. Approximately 64% of Southwest’s fuel costs is hedged for the rest of this year at around $60 a barrel. This puts the company in a better position than many of its larger peers.
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Alaska Airlines: first to get back on its feet
Alaska Airlines (NYSE: ALK) appears to have the best balance sheet in the industry, with a 49% debt-to-capitalisation ratio. Since the start of the pandemic, it’s been the first airline to stop burning through cash, the first to become cash-flow positive and the first to become profitable.
The company is moving toward a low-cost structure that should match Southwest’s by next year. The group’s operating margin has regularly eclipsed the domestic industry’s over the past 20 years. Unlike other airlines, Alaska is working towards a single-type fleet, which should lead to millions in cost savings in aircraft swaps, maintenance and less need to train pilots. This is expected to more than offset higher labour and airport costs. Half of Alaska’s fuel requirements are hedged until the end of this year at a cost of $71 a barrel.
Ryanair: Europe’s biggest budget carrier
Ryanair Holdings (Nasdaq: RYAAY) is the largest airline in Europe, with flights to nearly 40 countries. The budget carrier is well positioned to take advantage of an increase in demand for leisure travel as Europe drops its Covid-19-related measures and restrictions.
To give you an idea of just how busy Europe may be this summer, the European airspace manager EUROCONTROL recently said it expects traffic in the upcoming months to stand at 90% of pre-pandemic levels. This could be a huge boon for Ryanair, which reported an average of 2,815 flights per day in April.
Ryanair is also drawing in the growing number of climate-conscious consumers in the European market. In June 2021 the company took delivery of the Boeing 737-8200 Gamechanger aircraft, which reduces fuel consumption by 16% per seat. As of March 2022, Ryanair has taken delivery of 61 of these aircraft. It will reportedly acquire an additional 70 within the year.
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