Will the Next Airline Rally Be Overseas?

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Investors in North American airlines were treated to a strong 2013, with returns of almost all large carriers beating the S&P 500 Index. But while I still see a lot of potential on this side of the Atlantic for numerous reasons, repeating the same multibagger gains seen since mid-2012 will be more difficult for North American airlines going forward, since prices have been pushed so much higher.

Investors looking to find the next airline rally still have opportunities and I believe some of the best are in Europe.

European carriers
With Europe slowly emerging from recession, European airlines have had a rough few years. But as the continent returns to growth, even if it's slow at first, air travel could see a major demand boost.

Air France-KLM (NASDAQOTH: AFRAF  ) has been beaten down by the recession as the French flag carrier has reported billions in losses over the past few years. But the airline's "Transform 2015" plan aims to slash costs and boost profits by, you guessed it, 2015. Cost cutting has helped to drive the multibagger gains seen at Air Canada (TSX: AC.B  ) in 2013. Shares of the Canadian airline rallied after it noted that cost savings were coming in above previous guidance. These savings have also helped to drive Air Canada's earnings, moving the airline from an avoid-like-the-plague investment to a star of Bay Street.

Air France-KLM already has a major network established, so effective cost cuts and an economic rebound could go a long way to increasing future earnings. But some investors are uncomfortable with Air France-KLM's debt load and may prefer Deutsche Lufthansa (NASDAQOTH: DLAKY  ) instead. The German airline is being affected by the slowdown in the European economy but resides in a country with one of the most stable fiscal situations in Europe. As the European economy regains its footing, Deutsche Lufthansa is in a prime position to benefit from increased business and leisure travel demand.

Another European carrier investors should look at is International Airlines Group (NASDAQOTH: ICAGY  ) . The company was formed out of the merger of British Airways and Spanish carrier Iberia in early 2011. Both carriers still operate under their own brand names, and apparently their earnings performance has as much in common as their brand names.

In the spring of 2013, British Airways showed its return to health by posting a profit of around 1 billion euros. However, poor performance at Iberia managed to wipe out that profit with a similar loss. By investing in International Airlines Group, investors get an airline with one foot in the U.K. and its other foot in the sluggish Spanish economy. On the bright side, this makes the airline one of the best choices for a recovery in the eurozone periphery. (Aegean Airlines could also work for investors wanting to play Greek aviation, but shares are more difficult to obtain in the United States.)

International Airlines Group is also set to have its worldwide network improved by the US Airways/ AMR merger that created American Airlines Group (NASDAQ: AAL  ) . American Airlines has been a longtime member of OneWorld alongside British Airways, and the merger with US Airways will add US Airways' routes to OneWorld. This will give all members of the alliance better opportunities utilizing the U.S. market.

Time for a rally
Airlines have a large cyclical nature to them, so it's no surprise that the slowdown in Europe has depressed their share prices. But just as European airline shares fell along with the economy, they have the potential to rise as Europe recovers.

As an added bonus, some carriers have taken this time to streamline operations to survive the recessionary environment. Airlines that have made operational improvements stand to see these changes realized to their greatest potential once demand strengthens. When investors consider investing in Europe's recovery, I believe European airlines are definitely worth a look.

America's next growth product
U.S. News and World Report says this "will drive the U.S. economy." And Business Insider calls it "the growth force of our time." In a special report titled "America's $2.89 Trillion Super Weapon Revealed," you'll learn specific steps you can take to capitalize on this massive growth opportunity. But act now, because this is your shot to cash in before the fat cats on Wall Street beat you to the potentially life-changing profits. Click here now for instant access to this free report.





Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2788533, ~/Articles/ArticleHandler.aspx, 8/31/2015 11:32:03 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Alexander MacLennan

Alexander MacLennan is a Fool contributor covering Industrials, Airlines, and Financial companies. He is always ready for a good growth or turnaround story and tries to find them before the market does.

Today's Market

updated Moments ago Sponsored by:
DOW 16,536.88 -106.13 -0.64%
S&P 500 1,976.02 -12.85 -0.65%
NASD 4,803.05 -25.27 -0.52%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/31/2015 11:16 AM
AAL $39.65 Up +1.03 +2.67%
American Airlines… CAPS Rating: ***
AC.B $0.00 Down +0.00 +0.00%
AIR CANADA, CL.B CAPS Rating: No stars
AFRAF $6.96 Down +0.00 +0.00%
DLAKY $12.10 Down -0.23 -1.84%
Deutsche Lufthansa… CAPS Rating: ****
ICAGY $41.47 Up +0.08 +0.19%