It's no surprise that the pandemic has posed a huge challenge to the travel industry. But as people look to venture out once more, it could be worth considering airline stocks again. Let's take a look at two smaller carriers today.
Minnesota-based Sun Country Airlines (SNCY -3.58%) diversifies its services among passenger, charter, and cargo businesses. Headquartered in Las Vegas, Allegiant Travel (ALGT -4.15%) provides airline services and has recently expanded into the vacation resort industry.
With similar market caps and amid an airline industry still recovering from the pandemic, which of these two airline stocks is better-positioned for a powerful takeoff?
Sun Country: A diversified business model
Sun Country Airlines differentiates itself from competitors by providing charter and cargo flight services in addition to passenger flights, including a partnership with Amazon to ship packages across the U.S. The company's charter operations include partnerships with Caesars Entertainment and Major League Soccer.
In Sun Country's second-quarter earnings release last month, the company saw a 46.8% increase in revenue year over year, citing a substantial increase in demand. Although Q2 is usually slow for the airline, total revenue per available seat mile (TRASM) rose by 29% versus Q2 in 2019, an impressive comparison with pre-pandemic numbers.
However, Sun Country still has an upward climb ahead to regain profitability. Compared to Q2 2021, when the company posted a net profit of $52.2 million, Sun Country showed a net loss of $3.9 million in the second quarter. A 77% price increase in aircraft fuel was primarily to blame, raising the airline's operating expenses by more than 35% compared to Q2 2019.
Besides high fuel prices, staffing and training have been Sun Country's other major headwinds. The understaffed airline reduced its scheduled services by 9% and charter services by 5% compared with 2019 levels, underscoring its current training challenges. Once its staffing issues are resolved, however, Sun Country expects better aircraft utilization and "high marginal profitability" on new flights.
Allegiant Travel: Breaking into the resort industry
In addition to scheduled passenger service air transportation, Allegiant Travel has recently branched out into the resort business. The company plans to open its first Florida vacation property, Sunseeker Resort Charlotte Harbor, in May of 2023, and has booked more than 1,100 room-nights to date.
Citing "astronomical" demand levels, Allegiant posted its highest quarterly revenue ever in its Q2 release -- $629.8 million, marking a 28% increase over Q2 2019. Total revenue per available seat mile increased more than 15% compared to 2019's second quarter. The company also expanded its air network and collected fares at a 15% higher price during the second quarter.
Despite the strong demand, Allegiant also had to contend with surging fuel prices and staffing challenges in Q2. The company had a profitable second quarter, but saw a more than 95% drop year over year -- a mere $4.4 million, versus $95+ million in Q2 2021. Integrating a new credit card processor also proved costly during the second quarter, leaving an estimated $10 million on the table.
Which of these ultra-low-cost carriers is a better buy?
With both a lower price-to-earnings ratio (P/E) and price-to-sales ratio (P/S), Allegiant Travel makes a better buy than Sun Country at the moment.
| Company | Market cap | P/E ratio | P/S ratio |
|---|---|---|---|
| Sun Country Airlines | $1.2 billion | 100.58X | 1.52 |
| Allegiant Travel | $1.7 billion | 37.07X |
0.81 |
Image source: Allegiant Travel.
Although Allegiant's airline is 100% leisure-based and therefore more susceptible to travel seasonality, if the company stays on track to open its new resort by May of 2023, the added revenue stream could spark a long-term recovery. With expansion in its crosshairs, Allegiant Travel could be one small-cap airline stock to buy and hold for years to come.
