Wizz Air Holdings (LSE: WIZZ) and Ryanair (LSE: RYA) have lots in common. They are both low-cost airlines built around the same business model with equally aggressive growth plans. They have also proven themselves to be fantastic investments over the past few years.
And as they continue to grow, I think they could be great additions to your portfolio in 2019.
Cracking the code
It has long been said that airlines are terrible investments. Indeed, billionaire and founder of the Virgin Group, Richard Branson once said the best way to become a millionaire is to “start with a billion dollars and launch a new airline.“
However, despite the reputation the industry has for burning investors, Wizz Air and Ryanair seem to have cracked the code. In fact, Ryanair is a model company having produced a total return for investors of 13.7% per annum over the past decade, turning every £1,000 invested into £3,762. Few other companies can claim to have produced similar returns for investors.
Wizz Air has only been a public company since February 2015, so its record of performance isn’t as illustrious, although it is still impressive.
According to my figures, over the past three years, shares in the firm have produced a total return of 14.8% per annum for investors, turning every £1,000 invested into £1,534. A similar investment in the FTSE 100 would be worth just £1,208 today.
Set to continue
Demand for low-cost air travel is only increasing and as long as these companies continue to act rationally, I see no reason why they cannot stay on their current trajectory.
Wizz Air, in particular, is experiencing explosive growth. For December, the number of passengers flown by it increased 18.3% year-on-year with the load factor, a measure of how full the company’s planes are on average, rising 1.3% to 88.3%. Over the 12 months to the end of December 2018, the number of passengers flown by the group increased 19.6%, and the load factor rose 1%, even though capacity increased by 18.4%.
These numbers appear to indicate that demand for Wizz Air’s services is expanding faster than the company can keep up with, which is excellent news for shareholders.
And even though Ryanair has been dogged by operational issues in 2018, according to the company’s traffic statistics for December, the number of passengers flying with the group in December increased 12% year-on-year. On a rolling annual basis, the number of passengers carried by Ryanair increased 8% to 139.2m.
Looking at the figures above, it is no surprise that City analysts expect Wizz Air to report substantial earnings per share (EPS) growth in the years ahead.
Specifically, analysts are forecasting a 27% jump in EPS over the next two years. Unfortunately, Ryanair’s bottom line is expected to contract as the company deals with higher costs, but growth is expected to return in fiscal 2020 and considering the rising demand for its services, I support analysts’ belief that the profit slowdown won’t last long.
So overall, if you have £2,000 to spend, I think these two airlines could be perfect additions to your portfolio in 2019 as their growth continues. Right now, shares in Ryanair are trading at a forward P/E of 11.2, and Wizz Air is dealing at 13.3, both undemanding valuations for top growth businesses in my view.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.