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Lesser-Known Airline Stocks Poised For Takeoff
There's good news and bad news within the airline industry. The good news is, according to the International Air Transport Industry, global air traffic in May moved back to pre-recession levels. The industry is even on course to turn a profit again in 2010 - the first since 2007. The bad news is, the recovery isn't bringing every airline with it. When it comes to airlines it's a stock-picker's market again.
One month of positive results hardly makes or breaks a trend, but given that some airlines are actually showing real improvement, the ones that aren't can't quite blame the recession any longer. So, June's results may well be an indicator of future strength or weakness. IN PICTURES: Top 10 Green Industries
June's Traffic
Alaska Air Group's (NYSE:ALK) traffic in June was up 11.5% for June (year-over-year), on a 6.4% increase in capacity. Continental Airlines (NYSE:CAL
On the flip-side, British Airways (OTC:BAIRY) saw an 11.1% dip in June traffic, and theIceland
The point here is that it is possible to grow top and bottom lines in this environment, even if not all airlines are managing to do so. However, the well-known names may not be the way to go in terms of investment.
The Big Picture
Although June's traffic reports aren't all in yet, it may not matter - the major investment-worthy trends were already evident in May. Incredibly enough, the biggest jump in that month didn't come from American or European carriers; it came fromLatin America , which saw an average 23.6% jump in May traffic. The second-biggest improvement came from the Middle East , where May's traffic jumped 17.5%.
Were it just May's numbers, the improvement in traffic from the two hot spots may be dismissable, but there is more to the story than that.
The International Air Transport Industry's (IATI) June 29 report mentioned that May airline traffic was back at levels not seen since 2007. However, that same report acknowledged that 2010's rebound wouldn't lift all boats, - make that airplanes - equally.
The most earnings (in dollars) are expected to come from the Asia-Pacific region; the IATI is looking for $2.2 billion worth of 2010 profit there, versus only $900 million worth of earnings from Latin America . In the Middle East and Africa , the industry's overseers are only anticipating a total profit of $100 million.
Does this mean you should stick with North American and Asian airlines? Not so fast.
Think Outside the Box
While the IATI's report was pretty explicit about where the dollars will be in 2010, the report doesn't add thatAsia 's $2.2 billion in earnings and North America 's $1.9 billion will also be shared by a proportional number of shareholders. So, while the boost in business is great for airlines, it's not going to do much for share prices.
Instead, based on May's traffic reports, the real opportunities for growth from airline stocks - and this is admittedly a bet on a global recovery - are actually coming from the Middle East and Latin America. The problem is, you'll have a hard time finding a publicly-traded (in theU.S. Middle East , and if you can name one publicly-traded South American airline, then you're doing better than most.
That said, there are some off-the-radar Latin American and South American airlines stocks enjoying the strong rebound in air traffic for the region. They're also enjoying not being yanked around by unreasonable analyst expectations, not being glared at by too many media eyeballs, avoiding wild swings in investor opinion, and steering clear of the uncertainty that pure-U.S. consumers bring with them wherever they go.
Copa Holdings S.A. (NYSE:CPA) is one of them. While an earnings hit has been as apt as an earning miss over the last four quarters, a strong EPS either way was never even in question. In fact, the company never took a quarterly loss at any point in the recession. But, although 2008's dip in earnings was a blip, analysts are currently looking for 2010's earnings to be weaker than 2009's.
The other airline to consider is Lan Airlines (NYSE:LFL), which hasn't been quite as powerful on the earnings front as Copa, but fared much better than its intercontinental peers. 2009 was a bit of a struggle, with two quarterly misses, one meet, and one beat. Between the consistency of earnings and the region's rebound in air travel, though, more "beats" may be on the horizon. (To learn more, check out Is That Airline Ready For Lift-Off?)
The Bottom Line
The airline industry may be headed toward some better times, but that doesn't mean that all airline stocks will benefit. In this case, the data suggests that investors should look to some of the off-the-radar stocks, particularly in Latin and South America, to capitalize on this trend.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
One month of positive results hardly makes or breaks a trend, but given that some airlines are actually showing real improvement, the ones that aren't can't quite blame the recession any longer. So, June's results may well be an indicator of future strength or weakness. IN PICTURES: Top 10 Green Industries
June's Traffic
Alaska Air Group's (NYSE:ALK) traffic in June was up 11.5% for June (year-over-year), on a 6.4% increase in capacity. Continental Airlines (NYSE:
On the flip-side, British Airways (OTC:BAIRY) saw an 11.1% dip in June traffic, and the
The point here is that it is possible to grow top and bottom lines in this environment, even if not all airlines are managing to do so. However, the well-known names may not be the way to go in terms of investment.
The Big Picture
Although June's traffic reports aren't all in yet, it may not matter - the major investment-worthy trends were already evident in May. Incredibly enough, the biggest jump in that month didn't come from American or European carriers; it came from
Were it just May's numbers, the improvement in traffic from the two hot spots may be dismissable, but there is more to the story than that.
The International Air Transport Industry's (IATI) June 29 report mentioned that May airline traffic was back at levels not seen since 2007. However, that same report acknowledged that 2010's rebound wouldn't lift all boats, - make that airplanes - equally.
Does this mean you should stick with North American and Asian airlines? Not so fast.
Think Outside the Box
While the IATI's report was pretty explicit about where the dollars will be in 2010, the report doesn't add that
Instead, based on May's traffic reports, the real opportunities for growth from airline stocks - and this is admittedly a bet on a global recovery - are actually coming from the Middle East and Latin America. The problem is, you'll have a hard time finding a publicly-traded (in the
That said, there are some off-the-radar Latin American and South American airlines stocks enjoying the strong rebound in air traffic for the region. They're also enjoying not being yanked around by unreasonable analyst expectations, not being glared at by too many media eyeballs, avoiding wild swings in investor opinion, and steering clear of the uncertainty that pure-U.S. consumers bring with them wherever they go.
Copa Holdings S.A. (NYSE:CPA) is one of them. While an earnings hit has been as apt as an earning miss over the last four quarters, a strong EPS either way was never even in question. In fact, the company never took a quarterly loss at any point in the recession. But, although 2008's dip in earnings was a blip, analysts are currently looking for 2010's earnings to be weaker than 2009's.
The other airline to consider is Lan Airlines (NYSE:LFL), which hasn't been quite as powerful on the earnings front as Copa, but fared much better than its intercontinental peers. 2009 was a bit of a struggle, with two quarterly misses, one meet, and one beat. Between the consistency of earnings and the region's rebound in air travel, though, more "beats" may be on the horizon. (To learn more, check out Is That Airline Ready For Lift-Off?)
The Bottom Line
The airline industry may be headed toward some better times, but that doesn't mean that all airline stocks will benefit. In this case, the data suggests that investors should look to some of the off-the-radar stocks, particularly in Latin and South America, to capitalize on this trend.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
James Brumley
James Brumley is a freelance writer and registered investment advisor. He began his career as a broker with a major Wall Street firm, where fundamentals and long-term holding periods were core strategies. After that, he switched gears completely, becoming an analyst at a short-term trading newsletter that focused on technical analysis. He now manages client money using the best of both philosophies. His company, Bluegrass Portfolio Management, offers investors an opportunity to reap superior returns with minimized risk.
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