Imagine piloting an airplane through a region where superhighway systems aren’t available as an alternative means of travel.
I’m not talking about a charter flight where it’s just you and a passenger or two. I’m talking about having a full cabin as you traverse remote terrain, because your service is in high demand from an unexpected set of travelers.
But this isn’t just the occasional trip. This is a full-time business for many airlines flying the friendly skies in the emerging airspace.
And even as infrastructure eventually gets put into place, this business is only going to soar much, much higher …
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Emerging Airlines Rise to Meet Growing Demand
You know that huge numbers of young people in developing markets all over the globe are migrating from farms to cities. Yet, most of these newly independent young adults don’t have cars to go back and visit their rural relatives.
But unlike their peers in major metropolitan cities in the developed world, they don’t have access to a fully developed public transportation system that would the trip back home easy, quick or, in many cases, possible.
In many regions, treacherous mountain ranges or sprawling deserts separate travelers from their destinations. And if all that weren’t good enough for an air carrier, there’s more: Few if any competitive airlines exist to ruin the party or create the same cut-throat price competition we see in the United States and other developed nations.
Even with this competition, however, the stock prices of U.S. airlines have been on a tear in recent months. Major air carriers such as Delta (DAL), United Continental (UAL), U.S. Airways (LCC) and Southwest (LUV) have recently hovered within whispers of their respective 52-week highs. Some are trading at double or triple their valuations from just two years ago.
But don’t get carried away by their performance. The real growth potential exists, and continues to exist, with carriers serving emerging markets.
Rapidly expanding populations, and millions of people emerging from subsistence living to middle-class consumer status with discretionary income (but still largely without cars or access to superhighway networks), make these countries fertile areas for air-traffic growth.
Consider Getting Carried Away by These Stocks …
A quintet of emerging-market airline stocks in the table below serves fliers in the economically growing regions of China and Latin America.
Each is interesting in its own way as an investment, although all five have achieved annual revenue growth averaging well into the double-digit percentages over the past few years.
That’s enough to surpass other U.S. and international airlines, except for aggressive low-cost tigers like Ryanair Holdings (RYAAY) and easyJet PLC (EJTTF on the Pink Sheets).
Geographically, this group offers interesting diversity.
EMERGING MARKET AIRLINE STOCKS TO WATCH
The pair of Chinese airlines, as their respective names indicate, represents the prosperous and urban southern and eastern regions of the world’s most-populous nation.
The three Latin American airlines in the group enjoy analyst expectations of 10 to 20 percentage points in earnings-per-share growth annually over the forthcoming half-decade.
Of the Latin American air carriers in the table, Gol Intelligent Airlines (GOL) is headquartered on the Atlantic Coast nation of Brazil while LATAM Airlines Group (LFL) is domiciled in the Pacific nation of Chile.
The growth potential of air travel in Latin America can be underscored by the fact that LATAM’s $10.2 billion market capitalization is the third-largest of any world airline, behind only Delta Air Lines at $12.5 billion and Ryanair at $12.0 billion.
LATAM has been ingesting consolidation expenses from a large merger and — untypical for an airline stock in the current market — its shares have recently been closer to their 52-week low rather than their 52-week crest.
But arguably, the most-strategically located of the Latin American carriers in the table is Panama-based Copa Holdings (CPA), headquartered smack-dab between North and South America and not far from both the Atlantic and the Pacific Oceans.
It serves virtually the entire Caribbean region, where the only alternative means of getting people around are slow and expensive watercraft. No need to ever worry about competition from superhighways in that market!
And speaking of the Caribbean, Copa has been offering multiple daily scheduled flights to Cuba, which recently initiated a policy of making exit visas possible to its long home-bound population.
And if Cuba ever decides to rejoin the commercial and tourist worlds, air traffic growth to and from the island would explode.
These emerging market airline stocks represent more value and much-greater growth potential than most major air carriers from developed nations, including the United States. So watch for future reports with more detailed analyses and specific investment recommendations regarding this group.
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