Global Middle-Class Growth Boosting These Stocks Worldwide
The current drama surrounding Malaysia Airlines Flight 370 has been riveting and indicative of how the superlative growth in travel in the airline sector has encompassed Asia along with the world.
For years now, since the recession hit in 2008, I have been increasingly bullish on the airline sector across the globe, but especially in the emerging markets like China, India, Eastern Europe, and Asia. Helping to drive up the demand for travel in the airline sector has been the upward push in wealth creation in many of these regions, which has given more people the ability to afford air travel.
The industry stats don’t lie. The airline sector is on target for its second straight year of higher profits, according to research by the International Air Transport Association (IATA).
According to the research, North America continues to be the biggest airline sector market with profits estimated at around $8.6 billion in 2014. Asia-Pacific airlines are entrenched in second place with an estimated $3.7 billion in profits, more than the $3.1 billion predicted for Europe. (Source: “Industry on Track for Second Year of Improving Profits – Rising Fuel Costs Largely Offset by Increased Demand,” International Air Transport Association web site, March 12, 2014.)
Take a look at the Dow Jones U.S. Airlines Index in the chart below. Notice the beautiful uptrend since November 2012 and the bullish golden cross on the chart, based on my technical analysis.
Chart courtesy of www.StockCharts.com
To play the airline sector in the United States, I like discount carrier JetBlue Airways Corporation (NASDAQ/JBLU). The company was formed in 1998 and currently serves markets in the United States, Puerto Rico, and Mexico, along with 10 countries in the Caribbean and Latin American regions. In February, the airline’s key revenue per passenger miles reading came in at 2.64 million for an 82.2% load factor, up 5.2% year-over-year.
If you are looking for a carrier in the airline sector with more international routes, take a look at a company like United Continental Holdings, Inc. (NYSE/UAL), which was formed from the merger of Continental Airlines and United Airlines in 2010. United Continental offers about 5,341 flights daily to more than 360 airports on six continents. Revenues are predicted to rise 3.9% to $39.75 billion this year, followed by $41.41 billion in 2015, up 4.2% year-over-year, according to Thomson Financial.
United Continental is also an excellent domestic airline sector play on China, which has become the fastest-growing air travel market in the world. China’s middle-class capital wealth has been on the superlative growth path, and this is sure to continue, given the upward moves in income levels in China. In addition, as China is now an integral part of the global economy, air travel to China has been exploding upwards and this will continue.
There’s news that China is looking at buying a minimum of 150 jets from Airbus Group, with Airbus also looking at building its first final assembly plant located outside of Europe in China. (Source: Hepher, T., “China in talks with Airbus on possible $20 billion aircraft deal – sources,” Reuters, March 19, 2014.) This is a great strategy from Airbus to attract Chinese business.
To play the growth in the airline sector, you can also consider buying parts suppliers, such as B/E Aerospace, Inc. (NASDAQ/BEAV) and Spirit AeroSystems Holdings, Inc. (NYSE/SPR).