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Asian Airlines: Taking Off and Flying High

Companies / Sector Analysis Aug 04, 2010 - 07:48 AM GMT

By: Tony_Sagami


Best Financial Markets Analysis ArticleI’m beat!

From door to door, it took me 35 hours to fly to Seattle via Bangkok, Manila, and Seoul. These trips were hard enough when I was a young man, but they are like a death march now that I’m in my 50’s.

It was especially hard because my flights were PACKED! The Seoul to Seattle flight was so full that they were turning away standby passengers and I spent 11 elbow-to-elbow hours with a friendly Korean couple.

I don’t have Superman x-ray vision, but if I did I would have seen that the cargo hold below may have been even more packed than the passenger section. Here’s what I mean …

According to the International Air Transport Association, global cargo shipments are 18.5% higher in the first six months of 2010 than they were during the same period in 2009.

Now, 18.5% is an impressive number but a look behind that number shows that most of the growth is coming from … Asia. According to Air Cargo World, a full 45% of the entire world’s air freight either originates or is shipped from Asia.

The Association of Asia Pacific Airlines said that its June traffic was 25.2% higher than it was in June of last year. That number is even more impressive considering that the total cargo capacity increased by 22% in the last year, and cargo traffic jumped 30.4%.

Andrew Herdman, AAPA Director General said, “During the first half of the year, Asia Pacific carriers carried 89 million international passengers, 14.9% up on the same period last year, spearheaded by a strong recovery in regional traffic. At the same time, international air cargo demand climbed by 34.8%, marking a dramatic recovery from the steep declines in international trade we experienced in the same period last year.”

Korean Airlines, the largest air freight carrier in the world, said that it now expects its 2010 cargo revenues to exceed its previous record set back in 2007 when everything in Asia was rocking and rolling.

The obvious message is that Asian businesses have rebounded and are shipping like crazy. The not-so-obvious — but potentially more important — message is that Asians are feeling so prosperous that they are importing foreign goods like crazy.

Total cargo capacity and traffic on Asian airlines are up dramatically.
Total cargo capacity and traffic on Asian airlines are up dramatically.

For example, imports into China have increased by 53% this year! To handle all that extra traffic, UPS and FedEx are scrambling to increase their capacity:

  • UPS had added two additional cargo planes to its daily Shanghai route as well as one plane to Beijing.
  • FedEx said it will add more planes to its Asia operations. Both companies, by the way, recently upped their 2010 profits and specifically credited Asia for the surprising growth.

Hong Kong-based Cathay Pacific recently reported a dramatic change to its inbound/outbound mix of cargo. “Traditionally, the flights going out would be absolutely full because of China exports, but flights coming back would not be so full,” said Cathay Pacific spokesman John Slosar. “But beginning in Q4 of 2009, the numbers started to balance out. Cathay Pacific is taking cargo jets that had been sitting idle back into service.”

Here is one example: Cathay Pacific is flying in 100 tons of lobster and 150 tons of grouper to China and Hong Kong every month from Australia and Indonesia. Shipments of sashimi-grade fish from Tokyo are up by 60% to 80 tons in the first four months of the year.

If you wanted to invest in an airline, Asia is the place to be. The International Air Transport Association said it expects global airline profits to hit 2.5 billion in 2010. Those profits won’t be evenly distributed. IATA predicts that European carriers will lose $2.8 billion while Asian airlines should “deliver the largest profit” at $2.2 billion.

If you wanted to invest in an Asian airline, there are lots of choices.

  • China Eastern Airlines (CEA)
  • China Southern Airlines (ZNH)
  • Cathay Pacific (0293.HK or CPCAY.PK)
  • Korean Airlines (003490.KS or KRNRF.PK)
  • Singapore Airlines ( SIA.SP or SPAAF.PK)
  • All Nippon Airways (ALNPF.PK)

And with oil prices appearing to have found some stability in the $70-$80 per barrel range, there shouldn’t be any horrific price shocks in the near future.

To be fair, I need to tell you that neither I nor any of my Asia Stock Alert subscribers own any airline stocks. In fact, the last airline position held was put options on China Southern earlier this year, but that position has profitably been closed.

By the way, airplanes aren’t the only way that goods get across the Pacific Ocean. You should also consider other parts of the Asia transportation food chain like ships, railroads, and trucking companies.

One underappreciated part of the Chinese transportation food chain is the toll highways that you can invest in such as Road King Infrastructure (1098.HK), Jiangsu Expressway (JEXYY.PK), Zhejiang Expressway (ZHEXY.PK), Sichuan Expressway (SEXHF.PK), Anhui Expressway (AUHEF.PK) and Shenzhen Expressway (SHZNF.PK).

As always, please don’t rush out and buy any of these stocks before you do your own research and figure out if they are right for you. The Asian growth story still has several decades to run so you’ve got lots of time.

Make no mistake, however, Asia is where the growth is and where you should consider keeping a significant chunk of your equity portfolio.

Best wishes,


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