Zacks Industry Outlook Highlights Ryanair Holdings, Southwest Airlines and Allegiant Travel

For Immediate Release

Chicago, IL – October 15, 2024 – Today, Zacks Equity Research discusses Ryanair Holdings RYAAY, Southwest Airlines LUV and Allegiant Travel ALGT.

Industry: Airlines

Link: https://www.zacks.com/commentary/2350013/buy-these-3-airline-stocks-to-capitalize-on-solid-industry-trends

Zacks Transportation – Airline industry’s prospects look bright on the back of a rosy air travel demand scenario. Declining fuel costs also bode well for airlines. This is because expenses on fuel represent a key input cost for airlines.

As a result, we believe that investors interested in the industry would do well to bet on stocks like Ryanair Holdings, Southwest Airlines and Allegiant Travel for higher returns.

About the Industry

The Zacks Airline industry players are 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. Their 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 a positive too.

Factors Relevant to the Industry’s Fortunes

Upbeat Passenger Volumes is a Major Tailwind: As air travel demand remains strong, airlines’ top-line performance is impressive. While air travel demand is particularly strong on the leisure front, it is heartening to note that business demand has made an encouraging comeback. Driven by healthy booking trends, many airlines have recently issued improved outlooks for the September quarter. For example, LUV now anticipates its third-quarter revenue per available seat mile (RASM: a key measure of unit revenue) to increase in the range of 2%-3% on a year-over-year basis. This marks an improvement from the previous forecast of flat to down 2%

Low Fuel Costs: The southward movement of oil price bodes well for the bottom-line growth of industry participants. This is because fuel expenses are a significant input cost for the aviation space. Notably, oil prices declined 14% in the July-September period, mainly due to weakening global demand. China, the world’s largest oil importer, struggled due to a slowdown in manufacturing, shrinking for the fifth consecutive month by September.

Story continues

Uptick in Labor Costs: The increase in expenses on the labor front represents another challenge for airlines. With U.S. airlines grappling with a labor shortage in the post-pandemic high-demand scenario, the bargaining power of various labor groups has naturally increased. As a result, we have seen pay-hike deals being inked in the space. This is resulting in a spike in labor costs. For example, Southwest Airlines expects consolidated cost per available seat mile, excluding fuel, third-party business expenses, profit-sharing and special charges, to increase in the 11-13% band year over year in third-quarter 2024.

Zacks Industry Rank Signals Bright Prospects

The Zacks Airline industry is a 29-stock group within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #25, which places it in the top 10% of 250 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 outperform 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 estimate for 2025 has improved 2.3% since August.

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 Surpasses Sector and S&P 500

Over the past year, the Zacks Transportation – Airline industry has gained 52.7% compared with the S&P 500 composite’s rise of 32.4%. The broader sector has gained 13.7% in the said time frame.

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 1.12X compared with the S&P 500’s 5.15X. It is also below the sector’s forward-12-month P/S of 1.89X.

Over the past five years, the industry has traded as high as 1.12X, as low as 0.41X and at the median of 0.67X.

3 Airline Stocks to Bet On

European carrier Ryanair Holdings is being aided by upbeat air travel demand. We are also encouraged by Ryanair’s initiatives to modernize its fleet.

Over the past 60 days, the Zacks Consensus Estimate for 2024 earnings has been revised 9.6% upward. RYAAY shares have gained 2% over the past month. RYAAY currently sports a Zacks Rank #1 (Strong Buy).

You can see the complete list of today’s Zacks #1 Rank stocks here.

Southwest Airlines is based in Dallas. Upbeat passenger volumes bode well for LUV. Passenger revenues, which account for the bulk of the top line, are upbeat, in turn boosting total revenues. Efforts to modernize its fleet also bode well.

Over the past 60 days, the Zacks Consensus Estimate for 2024 earnings has been revised 135% higher. LUV currently carries a Zacks Rank #2 (Buy).

Allegiant is based in Las Vegas, NV. We are impressed by the company’s efforts to modernize its fleet. Strong passenger volumes bode well for Allegiant.

Over the past 60 days, the Zacks Consensus Estimate for 2024 earnings has been revised 75% upward. ALGT currently carries a Zacks Rank #2.

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Ryanair Holdings PLC (RYAAY) : Free Stock Analysis Report

Southwest Airlines Co. (LUV) : Free Stock Analysis Report

Allegiant Travel Company (ALGT) : Free Stock Analysis Report

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