Which airline stock to pick between American Airlines vs SkyWest

BlogAugust 25, 2021

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A resurgence of COVID-19 cases could affect the aviation industry’s recovery. However, in return, vaccination rates are expected to increase with the full FDA approval of the Pfizer-BioNTech vaccine which is delivering good results for the industry.

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Latest Developments

In an announcement dated August 24, 2021, AAL said it is reopening its Flagship lounges and Flagship First Dining on September 14, offering a premium dining experience to customers during travel. With its revamped menus designed in collaboration with popular chefs, AAL hopes to generate improved profits this fall.

On August 9, 2021, SKYW signed a multi-year capacity purchase agreement with Delta Air Lines, Inc. (DAL) to purchase and operate 16 new E175 aircraft. Scheduled to begin service in the first half of 2022, the 16 new E175 aircraft will replace 16 SKYW-owned CRJ900s. With these new, dual-class aircraft, SKYW hopes to serve its partners and passengers better and work toward its full domestic recovery in the coming months.

Recent Financial Results

AAL’s total operating revenues for its fiscal second quarter, ended June 30, 2021, increased 35.3% year-over-year to $7.48 billion. The company’s operating income came in at $441 million, versus a $2.49 billion loss  in the prior-year period. AAL’s net income has been reported at $19 million for the quarter, compared to a $2.07 million loss in the prior-year period. Its EPS came in at $0.03, versus a $4.82 loss per share in the year-ago period. As of June 30, 2021, the company had $465 million in cash and restricted cash.

For its fiscal second quarter, ended June 30, 2021, SKYW’s total operating revenues increased 87.7% year-over-year to $656.99 million. The company’s operating income came in at $115.02 million, versus a $4.40 million loss in the prior-year period. SKYW’s net income has been reported at $61.99 million for the quarter, compared to a $25.72 million loss in the year-ago period. Its EPS was  $1.22, versus a $0.51 loss per share in the prior-year period. The company had $955.68 million in cash and marketable securities as of June 30, 2021.

Past and Expected Financial Performance

AAL’s total assets have grown at an 11.3% CAGR over the past three years. Analysts expect AAL’s revenue to increase 76.9% year-over-year in the current year and 37.9% next year. Its EPS is expected to remain negative in the current year.

In comparison, SKYW’s total assets increased at a 5.7% CAGR over the past three years. Analysts expect SKYW’s revenue to increase 23.9% year-over-year in the current year and 18.4% next year. Its EPS is expected to increase 1394.1% in the current year.

Profitability

AAL’s trailing-12-month revenue is almost 8.3 times what SKYW generates. However, SKYW is more profitable, with an 18.8% gross profit margin versus AAL’s negative value.

Also, SKYW’s 8.6% and 3.8% respective EBITDA  and net income margins compare favorably with AAL’s respective negative values.

Valuation

In terms of non-GAAP forward P/G, SKYW is currently trading at 11.77x, compared to AAL’s negative  2.73x.

And, in terms of trailing-12-month EV/Sales, AAL’s 2.27x is 14.5% higher than SKYW’s 1.94x.

Conclusion

Although a resurgence of COVID-19 cases has led to booking cancellations, both AAL and SKYW should recover later this year. However, we think its higher profitability and relatively lower valuation make SKYW a better buy now.

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