(By Tim - iStockAnalyst Writer) Three Latin American airline stock currently provide a double-barreled opportunity for profits. First, these airlines are completely different beasts from their U.S. counter parts. They are profitable and intend to stay that way! Also, they serve markets where the economies and affluence of prospective flyers continues to grow. The second big positive for these companies is falling oil prices. With oil down to close to half of what it was a few months ago, the additional savings is really going to help the bottom line of these fliers.
Chile based LAN Airlines is the old timer of the three, having gone public in 1989 and actually started flying passengers in 1929 as a government owned airline. The current LAN fleet consists of about 80 passenger aircraft and 10 cargo aircraft. Flights serve 54 destinations in Latin America, 3 in North America, 2 in Europe and 4 in the South Pacific. In the first half of 2008 LAN increased revenues by 34% and net income increased 7.4%, despite a $157 million increase in fuel costs in the 2nd quarter. The company has a consistent dividend policy of paying at least 30% of profits. Annual dividends have averaged 6-8% of share price and are paid in varying amounts 3 times a year.
Copa Holdings is the holding company for Panama based Copa Airlines and Columbia dedicated AeroRepública. Copa Holdings was incorporated in 1998 with Continental Airlines holding 49% of the stock. The fleet of 56 aircraft serve over 40 cities in 22 countries including service to Miami, Los Angeles, New York and Washington, D.C. For the 2nd quarter of 2008 revenues for Copa increased by 26% and earnings per share were level with a year earlier at 70¢. The high level of profitability was maintained in the face of a 56% increase in fuel costs. Copa has consistently maintained a high level of profitability and has plans to grow their fleet and capacity by about 10% per year.
Brazilian airline holding company GOL was founded in 2001, went public in 2004, and consist of low fare airline GOL Transportes Aéreos S.A. and premium service VRG Linhas Aéreas S.A. (VARIG). The company's 106 aircraft serve 50 locations in Brazil and a dozen international cities.
Over the last 5 years the GOL has compounded revenues by 37% per year. In 2007 net income fell off sharply when GOL purchased competitor Varig. For the 2nd quarter of 2008, revenues increased 27% over 2007 and net income fell into negative territory, losing 52¢ per share on higher fuel charges and one time expenses on route shut downs to Mexico and Madrid. Inefficiencies at VARIG have hurt the bottom line and the company is making strides to bring the acquisition up to GOL standards.
The three airlines outlined above give the investor opportunities to participate in the growth of prosperity of Latin America and profit from the rapid fall of oil prices. Risk factors are general market sentiment towards the region as witnessed by the recent 50% decline in the iShares Latin America 40 stock ETF (ILF). The other challenge is whether investors can see the difference between these growing, profitable airlines and their struggling North American cousins. I believe the profitability of these three in the coming quarters will make them stand out from the crowd and surprise many.
