Airline Companies: 2007 Brings Hope
By Ann Sosnowski
In this article
North American airline companies are starting to post record profits and erase last year's losses.
Analysts predict that this will be the year for Chinese and Asian airline carriers.
China Southern Airlines Co. Ltd. (ZNH:NYSE) stock moved over 100% last year, and could continue providing investors these gains in 2007.
Airline Companies: 2007 Brings Hope
I really don't like flying, so whenever I can avoid it, I do.
For instance, two years ago, in the middle of the winter, I decided to drive to Boston for the weekend. It was right after they had about three feet of slow covering the streets. It took about eight hours.
I could have flown. But I drove… even though there was nowhere to park my car.
It's been a while since I've seen a compelling argument for the airline industry. They've gotten a bad rap recently: long lines at airports, delayed flights, canceled flights, lost luggage. You have to expect an adventure every time you fly.
But according to Giovanni Bisignani, the International Air Transport Association's director general and chief executive, 2007 could be the first time in six years that airlines will be profitable. And like many other industries, China and Asia in general, are going to spur the airline industry's reemergence.
By 2010, Asia will account for one-third of the world's air traffic. Global airline profits could reach $3.8 billion this year.
That's good news for Chinese and Asian airlines. But North American carriers look to still post a loss of $600 million this year.
Airline Companies: American Carriers Post First Profits In Years
Regardless, the American airline industry is looking up.
AMR Corporation (AMR:NYSE) that runs American Airlines Inc. is currently operating at a profit margin of only 1.02%. The company's debt at $13.39 billion exceeds its cash by three times.
Regardless, the company posted its first profit since 2000, $231 million -- a staggering $1.1 billion over 2005. AMR's stock is on the rise, currently above $32.00 per share.
US Airways Group Inc. (LCC:NYSE) reported a profit of $303 million in 2006, compared with a loss of $335 million in 2005. It also operates with a low profit margin of 2.63%, but has debt of only $3 billion, on an even keel with its cash in pocket.
Sadly for LCC, its share price is in the dumper without any 200-day Moving Average support. LCC is extremely high priced at $45 per share.
And Continental Airlines Inc. (CAL:NYSE) also operates at a low profit margin of 2.61%. It has twice as much debt as cash, at $5.43 billion.
CAL also posted a full-2006 year profit of $343 million compared to a loss of $68 million in 2005. Its stock is at $40 per share, but is still in a slight falling trend. If it continues to remain above 200-day support, it may be the best American airline investment for the year.
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But these American airline profits pale in comparison to Chinese airlines.
Airline Companies: Strong Chinese Airline Returned 114% Gains Last Year
One of Diligent Investor's favorite picks last year was on China Southern Airlines Co. Ltd. (ZNH:NYSE). Subscribers could have made as much as 114% on their initial investments in this recommendation.
ZNH flies commercial services not only in the People's Republic, but in Hong Kong and Macau, a major gambling and tourist attraction. It just also launched a non-stop service to the Middle East. It received a credit extension yesterday from China Construction Bank.
The company is not yet profitable, but if analysts are right about China and Asia leading the airline industry this year, they will be.
Expectations by Merrill Lynch are that ZNH will post a small net profit of 245 million yuan (or USD$31.71 million) in 2006 and will book a record profit of 1.38 billion yuan in 2007 (or USD$178.6 million).
The company's public offering is only trading at $25 per share. If last year is any indication, ZNH could very easily offer an opportunity for a fast double on a quick investment.
Of course, with many Chinese investments, you have to be comfortable not receiving as much companies information as you do American companies. And you may even have to translate Chinese once in a while.
As for me, if I'm ever traveling to China, I'll take a few extra weeks off, and take a boat.
***
Ann Sosnowski is a small and mid-cap stock analyst for Taipan Financial News. She is the editor of Diligent Investor, a monthly newsletter that balances conservative and moderately risky investments that pertain to current market trends. She is also the editor of Diligent Investor Micro-Cap Hot Sheet, a monthly newsletter that finds the hottest penny and micro-cap stocks on the market.
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Related Resources
Airline Companies: Growth in Asia expected to spur aviation industry. - MSNBC
Airline Companies: Chinese stocks are hitting new highs boosting airline companies and airport operators. - International Business Times
Airline Companies: Peruse the Financials for China Southern Airlines. - Yahoo!Finance