Copa Holdings, S.A. (CPA): Flying Where the Growth Is, Emerging Markets Airlines

Many investors are searching for growth in emerging markets as the economies of developed markets continue in a pattern of slow growth. Part of the emerging markets bull thesis is a growth in the number of middle class consumers who will buy more consumer goods thereby boosting economic output. There are many ways to play growth in the middle class but this article will primarily focus on the potential for air travel.

Growing Panamanian carrier

Airline stocks in the U.S. have seen an impressive rally over the last several months before slowing down more recently. Much of the same can be said of Copa Holdings, S.A. (NYSE:CPA), which operates primarily in South and Central America. Shares of Copa have about doubled since the beginning of 2012 and have more than quintupled since 2009. This share price growth comes on the back of strong earnings growth as earnings per share rose from $4.82 in 2010 to $7.35 for 2012. And estimates from 4-traders.com project continued earnings growth with earnings hitting $12.60 per share for 2015.

Copa Holdings, S.A. (NYSE:CPA) has been on a wave of expansion in the past several years. While it began operations mostly as a domestic carrier, Copa is now expanding its fleet with new jets giving it the ability to add capacity on international routes while using modern, more efficient aircraft to reduce operating costs.

Credit: Copa Holdings, S.A. (NYSE:CPA)

Troubled Brazilian carrier

Shares in Brazilian companies have had a rough year seeing as the Ibovespa Index (based on select companies on the Sao Paulo Stock Exchange) has fallen from over 60,000 at the beginning of 2013 to just above 45,000 today. The most recent drop in the Ibovespa Index has been partially influenced by the civil unrest in Brazil. Investors tend to dislike uncertainty and civil unrest brings plenty of this.

In the midst of this, shares of Brazilian airline Gol Linhas Aereas Inteligentes SA (ADR) (NYSE:GOL) are struggling along with much of the Brazilian stock market. But Gol is being hit particularly hard by a drop in the Brazilian real causing its U.S. dollar-based obligations to increase. However, Gol is attempting a turnaround fed by cost cutting and better management of capacity. While the analyst community is still generally bullish on Gol Linhas Aereas Inteligentes SA (ADR) (NYSE:GOL), this airline represents a greater financial risk than Copa Holdings, S.A. (NYSE:CPA), and investors should keep this in mind if they choose to invest in Gol.

U.S. based emerging markets

It doesn’t sound right that an American airline would have emerging markets as a core part of their business model over the next several years but Hawaiian Airlines, owned by parent company Hawaiian Holdings, Inc. (NASDAQ:HA), is set to make east Asia a core part of its network. With a strong position in the Hawaiian market, the proximity of Hawaii in relation to the markets of east Asia makes Hawaii a prime spot for tourists from emerging markets. At least this is what Hawaiian hopes for.