According to International Air Transport Association (IATA) international traffic was up 6% in March, while domestic traffic grew 5.7%. Airlines operate in a very competitive environment, where costs have been moving up while pricing power is limited and passenger traffic is very sensitive to tariff increases. This makes successful strategic decisions and special advantages a key to outperform competitors.
Based in Panama City, Copa Holdings, S.A. (NYSE:CPA) strategic location facilitates access to the entire region. With its operating margin of 17.6% in 2012, it ranked as one of the most profitable in the global airline industry.
Copa Holdings, S.A. (NYSE:CPA)’s CEO, Pedro Heilbron, said recently that he expected the carrier to retain its advantage transferringpassengers to and from Latin America because of the infrastructure and congestion constraints faced by rivals.
Brazil is hosting of the soccer World Cup next year and the summer Olympics in 2016, which has raised awareness about the poor airport infrastructure in the region. Panama’s state-controlled airport operator has, in contrast, invested heavily in Tocumen International Airport, which just over half of Copa’s passengers use to transit to and from parts of the Americas.
According to April’s statistics, its RPM (Revenue Passenger Miles) increased 18.3% year-over-year and its ASM (Available Seat Miles) increased 20%.
Copa Holdings, S.A. (NYSE:CPA) is growing its strategic alliance or code-sharing arrangement with Continental Airlines. This means that a lot of additional traffic is directed to Copa Holdings, S.A. (NYSE:CPA) without any effort. Copa invested in a Colombian airline to start international service from South America’s third most-populous country, but there are no immediate plans to replicate this elsewhere.
Based in Brazil, Gol Linhas Aereas Inteligentes SA (ADR) (NYSE:GOL), the largest low-cost and low-fare airline in Latin America, operates flights to South America, Caribbean and the US under the GOL and VARIG brands.
The company has been experiencing losses due to a rise in fuel costs and landing fees at Brazilian airports with currency depreciation. About 73% of its debt is denominated in dollars.
Gol Linhas Aereas Inteligentes SA (ADR) (NYSE:GOL) said it is studying the possibility of a new route between Brazil and Nigeria, in Africa. Inside Brazil, Gol recently doubled its number of flights in Campinas. The company targets to connect the southeastern region of Brazil with the rest of the country via Campinas.
Gol Linhas Aereas Inteligentes SA (ADR) (NYSE:GOL) entered into a code-share agreement with Delta Air Lines, Inc. (NYSE:DAL) whereby the two carriers will maximize the connecting routes in the Brazil-US passage. By August-end, all spots in Brazil that are operated by Delta will be incorporated into Gol’s network.
Delta Air Lines, Inc. (NYSE:DAL) is the second largest US airline and is America’s fastest growing international carrier. It has the biggest presence in Hartsfield-Jackson Atlanta International, the world’s busiest airport, and it is the most prevalent airline at both airports in New York, and continues to be a leader in international flying by dominating transatlantic flight.
Also, Delta has the second-largest market share in London’s Heathrow, the largest international destination for corporate travel, via its 49% investment stake in Virgin Atlantic in 2012. Delta Air Lines, Inc. (NYSE:DAL) has tried to differentiate the flying experience by introducing offerings such as lie-flat beds in hopes of creating a high-margin revenue line.
The company decreased its RPM 0.7% in April, to $15.5 billion. Its regional RPM declined 8.7%, while its international RPM rose 0.2%. Its ASM decreased 0.5%.
On May 7, Delta Air Lines, Inc. (NYSE:DAL) announced plans for a $500 million share repurchase and initiated a 6 cents per share dividend, restarting its quarterly common dividend for the first time in 10 years.
Over the next five years, Delta Air Lines, Inc. (NYSE:DAL) plans to reinvest 50% of its operating cash flow into improving the company’s fleet, facilities, products and technology. The remaining free cash flow will be used to return cash to shareholders, further reduce the company’s debt, and opportunistically address longer-term pension funding needs.
Bottom line
Copa Holdings, S.A. (NYSE:CPA) stands out as an excellent candidate for investors. Its strategic location and infrastructure advantages position it to consistently outperform its competitors. Its code-sharing arrangement may also create operational synergies.
Gol’s long-term business strategy of route expansion, strategic acquisitions and agreements with other companies are likely to create significant operational synergies as well. However, various risks remain, such as increased aircraft maintenance costs and currency depreciation effects on a U.S. dollar denominated debt.
Delta Air Lines, Inc. (NYSE:DAL) enjoys a comfortable and competitive position within the domestic industry. Also, its arrangement with Gol Linhas Aereas Inteligentes SA (ADR) (NYSE:GOL) will be mutually beneficial and benefits from investments made to improve operating efficiencies and customer experience will allow Delta to remain profitable.
Victor Selva has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article 3 Stocks in the Airline Market originally appeared on Fool.com.
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