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Why Airline Stocks Are Headed Higher

Companies / Sector Analysis May 18, 2013 - 03:26 PM GMT

By: Profit_Confidential


George Leong writes: The improved global economy has helped to drive up the spending habits of consumers, and an area that has really benefited from the income creation is the travel sector.

Airlines around the world have reaped the benefits from the improved travel sector.

The airline sector is estimated to earn $10.4 billion in profits this year, up from the previous estimate of $8.4 billion, according to the International Air Transport Association (IATA). (Source: “Small Boost to Airline Profitability – Industry Profit Margin Improves to 1.6%,” International Air Transit Association web site, March 20, 2013.)

According to the IATA report, the top market in the airline sector is predicted to be the Asian-Pacific airlines, with estimates calling for $4.2 billion in net profits this year, up from $3.9 billion in 2012 and accounting for a 40.4% share of the total global airline sector.

The North American airline sector is also looking good, with profits estimated at $3.6 billion this year, well ahead of the $2.3 billion recorded in 2012.

Coming in third is expected to be the Middle Eastern airline sector, with $1.4 billion in profits, more than 50% higher than the $900 million in 2012.

The airline sector has been improving since the end of the recession. Lower fuel costs and increased bookings and travelling have helped to drive up the sector.

Take a look at the Dow Jones US Airlines Index in the chart below. Notice the beautiful uptrend since November 2012 in correlation with the S&P 500, as highlighted by the green line.

Chart courtesy of

In the low-cost discount side, a carrier that I frequently fly with and like is JetBlue Airways Corporation (NASDAQ/JBLU). I have followed the stock for over a decade and continue to feel the company has what it takes to be a major player in the discount airline sector.

Chart courtesy of

First formed in 1998, JetBlue Airways is a discount air carrier serving markets in the United States, Puerto Rico, and Mexico; along with 10 countries in the Caribbean and Latin America region. JetBlue offers services to 77 cities via 800 daily flights.

In April, the airline’s key revenue passenger miles reading came in at 11.5 million for an 83.8% load factor, up 6.8% year-over-year. (Source: JetBlue Airways Corporation, last accessed May 16, 2013.)

Following a decline in revenues from 2008 to 2009, JetBlue came back with growth in 2010 to 2012 and Thomson Financial estimates call for the growth to continue in 2013 and 2014.

For more of a global airline sector play, United Continental Holdings, Inc. (NYSE/UAL) is worth a look. The company formed from the merger of Continental Airlines and United Airlines in 2010.

Chart courtesy of

United Continental offers around 5,446 flights daily to 370 airports on six continents.

Revenues are predicted to rise three percent to $38.3 billion this year, followed by $39.7 billion in 2014, up 3.9% year-over-year.

To play the growth in the airline sector, you can also play the suppliers of parts and services, which I discussed in “Aerospace: The Only Way Left to Play Global Growth.”


George Leong, B.Comm.

We publish Profit Confidential daily for our Lombardi Financial customers because we believe many of those reporting today’s financial news simply don’t know what they are telling you! Reporters are trained to tell you the news—not what it can mean for you! What you read in the popular news services, be it the daily newspapers, on the internet or TV, is the news from a “reporter’s opinion.” And there’s the big difference.

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