As pent-up demand for flights persists, airline stocks could be due for a rebound. The urge to get back out there in the post-pandemic era shows no end in sight, and savvy investors can potentially benefit from the airline industry's recovery.
Today, I've compared a couple of beaten-down airline stocks to determine which is the better buy in today's market.
The case for JetBlue Airways
From its highs in April 2021, JetBlue Airways (JBLU -4.99%) stock fell nearly 62% to its current price in the $8 to $9 range. Recently, however, JetBlue shares climbed more than 35% from their lows of late last year.
In a significant turning point for the New York City-based carrier, JetBlue regained profitability in the second half of 2022. In fact, 2022 ended up producing the airline's best year of revenue in history, totaling more than $9.1 billion.
As for last quarter, total operating revenue landed at $2.4 billion, setting a record for Q4 sales. JetBlue's December completion factor, or percentage of completed flights, reached 98.2% -- impressive considering the airline endured two major weather events during the month.
JetBlue Airways launched new flights in New York and Boston last year, connecting the American Northeast to London. In addition, the airline will begin scheduled service to Paris this summer. These expansion plans come alongside the company's purchase of Spirit Airlines (SAVE -4.48%), which is anticipated to close by the first half of 2024.
The acquisition of Spirit Airlines will position JetBlue as a genuine competitor to the "Big Four" airlines: Delta Air Lines, American Airlines, United Airlines, and Southwest Airlines.
Despite heightened operating expenses including labor and fuel, JetBlue expects 2023 will produce its first full year of profit since before the pandemic. During the fourth-quarter earnings call, CEO Robin Hayes outlined how company initiatives including fleet and maintenance optimizations will enhance its long-term profitability.
The case for Sun Country Airlines
From its April 2021 high north of $44 a share, Sun Country Airlines (SNCY -2.94%) has dropped 49% to its current price around $22. That being said, the stock also has recovered nicely from its October 2022 lows, up more than 68% since then.
Last quarter, Sun Country Airlines delivered all-time-high annual revenue of $227 million on an adjusted operating margin of 7%. Both figures landed at the upper ends of management's guidance ranges. Fourth-quarter adjusted net income came in at $7.9 million, rising 36% from the same period in 2021.
After a bustling holiday season, Sun Country posted an industry-best 99.6% completion factor in December of last year. As a result, the airline's Q4 scheduled service total revenue per available seat mile (TRASM) increased 27.3% year over year.
In another remarkable improvement, fourth-quarter system block hours -- the total time from when each aircraft closes its doors to when those doors are opened upon arrival at the destination -- surged 37% over the same period in pre-pandemic 2019.
For the year, Sun Country brought in adjusted net income of $25.8 million, a nearly 42% increase versus 2021. In the face of elevated maintenance, crew, and fuel costs, the company expects strong first-quarter results. Indeed, 80% of planned passenger revenue for the quarter has already been booked.
The first quarter traditionally produces the best results for Sun Country, and guidance suggests a revenue range surpassing 2022 levels by 24%-28%. The company expects a Q1 operating margin of 15% to 20%, and CEO Jude Bricker believes margins will continue to grow throughout the year.
Which airline stock is a better buy?
I personally think both of these airlines are positioned to grow in the upcoming quarters and years, provided the macro environment doesn't throw any major wrenches. To determine which stock is a better buy in today's market, I've compared the two companies' price-to-sales ratios (P/S), price-to-book ratios (P/B), last quarter's Q4 financial leverage ratios.
| Metric | JetBlue Airways | Sun Country Airlines |
|---|---|---|
| Market cap | $2.75 billion | $1.17 billion |
| Price-to-sales ratio | 0.30 | 1.41 |
| Price-to-book ratio | 0.77 | 2.38 |
| Financial leverage ratio (Q4 2022) | 1.92 | 1.37 |
Data source: Yahoo! Finance, CSIMarket.
While JetBlue Airways has much lower and more attractive P/S and P/B ratios, it also has a higher financial leverage ratio -- making it a potentially riskier investment. And that ratio is likely to grow for JetBlue if the Spirit acquisition closes as expected.
Plus, although JetBlue's bold ambition to grow might make it seem more appealing, keep in mind that bigger isn't necessarily better. For one, JetBlue's acquisition of Spirit Airlines would be put the company in direct competition with the "Big Four" airlines -- contending with the fiercest competitors in the industry.
Second, research shows that mergers and acquisitions can sometimes fail to create value altogether, especially if done infrequently. Borrowing rates have also risen to less favorable levels since the deal was first announced.
That being said, I think JetBlue Airways stock is the winner based on beating Sun Country Airlines in two-out-of-three of my financial criteria. Investors should pay close attention to future earnings reports, as well as emerging details of the Spirit acquisition, to ensure the company remains on its flight path of profitability.
