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It’s no surprise that with the economic growth pattern of China, Atlanta looks set to relinquish the title of world’s busiest airport to Beijing after 15 years at the top.
But what’s lost to most observers is that the growth to the South is also traveling faster … to South America, that is.
According to the latest International Air Transport Association figures, this shift toward emerging markets is continuing at a rapid pace. IATA statistics show that Latin American-originating flight-traffic volume, as measured by Revenue Passenger Kilometers, increased 13.3% while North American flights gained only 4.9% year-over-year.
So while the U.S. is just recovering from the impact of higher oil prices, Latin America and the rest of the emerging markets are sprinting ahead.
From an investor’s point of view, here are a couple of angles to play this two-speed race.
1. Add an airport concession stock.
One of the greatest travel locations for personal travel is Mexico, and it’s not just for spring vacations anymore.
Although conventional wisdom suggests we’ll be heading to Brazil, Russia, India and China (the BRIC countries) more and more — the hottest vacation destinations in the coming years could be the “SLIMMA” five. These emerging nations — Sri Lanka, Indonesia, Malaysia, Mexico and Argentina — are set to dominate travel and tourism in the near future.
The SLIMMA countries are rated as among the world’s fastest-growing travel hotspots by over 1,000 industry insiders such as travel agents and senior travel buyers. Of these countries, Mexico benefits from both strong domestic demand and international travel attractiveness. And of the main publicly traded Mexican airport-management stocks, the best performer there is up 39% year-to-date.
It’s Grupo Aeroportuario del Sureste SAB (ASR). It operates nine airports in southern Mexico and recently said its first-quarter net income gained 29%.
In its latest earnings release, it noted that passenger traffic rose to 5.1 million in the first quarter. That’s a 10% increase compared with the same period a year earlier.
Most of this came from in-country demand. Domestic traffic jumped by 20%, while international traffic rose by a not-too-shabby 5.8%. No wonder that the stock has been one of the best performers in emerging markets. It’s up 63% from its 52-week, $48 low and still climbing.
But be careful buying just any airport operator. They only make money as long as the planes fly and when the airlines go bankrupt, the carriers don’t always pay their bills. Even once-dominant carriers like American Airlines can declare bankruptcy, and not all airlines flying are making money. These days, an airline turning a profit can be reason to celebrate.
Which brings up another angle to consider.
2. Add an airline stock.
I’m currently looking at one of the hottest tie-ups in emerging markets for subscribers of my Emerging Market Winners newsletter. I am just waiting for an ideal entry price to issue that recommendation, probably within the next couple of weeks.
In the meantime, there is actually one U.S. stock that I am watching I can talk about. And that’s US Airways (LCC).
If or when the company acquires a certain large international travel provider, we might actually see a much-stronger, cross-hemispheric carrier.
US Airways just reported a first-quarter profit of $48 million because of one-time items, although it admits it is still burning away money on flying. The $48 million profit worked out to 28 cents per share. A year ago, the airline lost $114 million, or 71 cents per share.
The company booked a $73 million gain after it traded landing rights in Washington and New York with Delta Air Lines. Without that, it would have lost $22 million, or 13 cents per share.
It’s in the running to acquire American Airlines’ assets out of bankruptcy with the help of the unions. This would be more than just an economy-of-scale move.
The routes for the most part seem like a workable fit, giving American more feeder traffic, which connects more international flights to US Airways. There are also tangible savings that can be worked out and other synergies.
Yet, while code-sharing arrangements have been a way for carriers to build larger networks, at the end of the day, a carrier’s biggest expense is equipment.
So that leads to the next idea here.
3. Add a plane-maker’s stock.
Airlines around the world are updating their fleets with new, more fuel-efficient planes, and that’s good news for aircraft maker Boeing (BA).
This week it said first-quarter profit soared 58%, beating analysts’ expectations, as sales at its commercial airplane division surged. Even its defense business grew, although much more slowly.
Boeing delivered 137 commercial airplanes in the quarter, with much of the demand coming from emerging markets.
The market reaction was immediately positive, but the stock is only up about 6% year-to-date. But there’s a better way to play this soaring space.
Right now, my subscribers are sitting pretty in one of the favorite Latin American industrials, a commercial plane maker whose business seems to be jet-fueled right now. The stock is up 38% year-to-date, and they have about a 30% gain, with plenty more upside to come as emerging-market airlines continue to book orders.
(To find out the name, and to get instant access to all my favorite emerging-market stock picks, click here to take my service for a risk-free test drive today!)
So, just how big is the Latin American and emerging-market travel opportunity? We can use the projections for China as a guide.
“The Chinese air travel market has the potential to grow 10 times from where it is today, assuming China will reach a similar level of propensity to travel as Europe and the United States,” said John Grant, an executive vice president at global-aviation-intelligence provider UBM Aviation.
He also notes that "If increased infrastructure demands can be met, the Chinese aviation market has the future potential to grow to over four times the size of the U.S. air-travel market."
For Latin America, that translates into a market that is eventually equal to the U.S. air travel market.
So there you have it. More travelers, going more places on more planes and more efficient carriers.
Still don’t believe it? Next year the inaugural World Travel Market Latin America, billed as the leading global event for the Latin American travel industry, will take place from April 23-25, 2013, at the Transamerica Expocenter in São Paulo, Brazil.
Take it from the people who know travel — Latin America is the place to be!
Best wishes,
Rudy
P.S. You don’t have to travel alone — as a passenger OR an investor — into these emerging-travel opportunities. Wait for my signal in Emerging Market Winners for the best time to make money from this industry (and others) when they’re truly set to power ahead.
See what my subscribers are making money on right now … and how you can ascend to profits without setting foot on an airplane! Click here now.
