With pervasive economic uncertainty, high costs of labor, and a customer base with stagnating income prospects, established airlines are looking like a bearish investment. However, like emerging economies themselves, airlines in Africa, South America, and Asia present investors with growth opportunities.
At the heart of the positive outlook for many of these companies is the growth of the middle class around the world that is expanding the segment of the population that can afford flying. As Western countries outsource jobs to the rest of the world spurring economic growth, in turn more people can use their incomes to travel regionally and globally. Additionally, although airlines everywhere are exposed to fluctuating fuel prices, companies in up-and-coming markets are less exposed to high labor costs because of the lack of organized workers unions and in some cases lesser government regulation.
A company called Fastjet is leading the way in bringing regional air travel to Africa. Considering the enormous growth potential on the continent and the fact that budget airlines account for only nine percent of all air travel, there is the possibility that this company could tap into untouched demand. Local discoveries of natural resources are strategically located are also being made so that fuel is easily accessible.
Emirates and Qatar Airways have also had success. Although these companies cater to a higher income demographic than others, by targeting their operations to the Asian market they have been able to outperform other airlines that are based in Europe and North America. Also in Asia, Chinese airlines have made significant inroads in addressing the demands of their country’s emerging middle class. Considering that the Chinese domestic market is forecasted to double in the next decade, it would appear that companies like China Southern Airlines (ZNH) have a bright future.
Finally, South America has been no stranger to local airlines emerging to make a significant impact on the industry following an economic renaissance in countries like Brazil, Argentina, and Costa Rica. Because of the rapid infrastructure development that has begun in the region, it appears that jobs and wealth will continue to expand to more and more people in that part of the world and companies like Copa Holdings (CPA), Gol Linhas Aereas Inteligentes (GOL), and Tam SA (TAM) stand to benefit.
Business Section: Investment Ideas
Do you believe that these companies will continue to thrive, or will a rise in global fuel price prevent these entities from reaching their full potential? The chart below indicates the market capitalization and average analyst recommendation for some of these assets.
Listed below is more information on these companies as a way to start your analysis.
1. China Southern Airlines Co. Ltd. (ZNH, Earnings, Analysts, Financials): Provides commercial airline services in the People's Republic of China, Hong Kong, Macau, Taiwan, and internationally. Market cap at $4.27B, most recent closing price at $21.74. The company operates out of Guangdong Province in southeastern China.
2. China Eastern Airlines Corp. Ltd. (CEA, Earnings, Analysts, Financials): Operates in civil aviation industry. Market cap at $3.5B, most recent closing price at $15.51. The company operates out of Shanghai.
3. GOL Linhas A (GOL, Earnings, Analysts, Financials): Operates as a low-cost low-fare airline in Latin America. Market cap at $1.16B, most recent closing price at $4.28. The company operates out of Sau Paolo City, Brazil.
4. TAM S.A. (TAM, Earnings, Analysts, Financials): Provides passenger and cargo air transportation services in Brazil and internationally. Market cap at $3.48B, most recent closing price at $22.24. The company is the largest Brazilian airline and operates out of Sau Paolo.
5. Copa Holdings SA (CPA, Earnings, Analysts, Financials): Provides airline passenger and cargo services. Market cap at $3.36B, most recent closing price at $76.52. The company is based out of Panama City, Panama.
6. LAN Airlines S.A. (LFL, Earnings, Analysts, Financials): Provides passenger and cargo air transportation services. Market cap at $8.73B, most recent closing price at $25.61. The company operates out of Santiago, Chile.
(Written by Dan Connelly)
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Analyze These Ideas: Getting Started
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Dig Deeper: Access Company Snapshots, Charts, Filings
- China Southern Airlines Co. Ltd. (ZNH, Chart, Download SEC Filings)
- China Eastern Airlines Corp. Ltd. (CEA, Chart, Download SEC Filings)
- GOL Linhas A (GOL, Chart, Download SEC Filings)
- TAM S.A. (TAM, Chart, Download SEC Filings)
- Copa Holdings SA (CPA, Chart, Download SEC Filings)
- LAN Airlines S.A. (LFL, Chart, Download SEC Filings)
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