A third Latin American airline has succumbed to bankruptcy, a sign of the toll the COVID-19 pandemic is taking on the industry. But for those that are still standing, the retrenchments are likely to offer opportunities, and some of the few remaining airlines in the region with stocks that trade in the U.S. are having a good day on Wednesday.
Airlines around the globe have struggled due to the pandemic, with Grupo Aeromexico SAB de CV (OTC:GRPA.F) on Tuesday joining Latin American rivals Latam Airlines Group and Avianca Holdings in bankruptcy. Gol and Azul have struggled as well, with the stocks off 60% and 72% for the year, respectively, but so far they have held strong as others have been forced to reorganize.
It's impossible to say when the pandemic will be behind us or how long the South American economy will struggle after it's over. But there are likely opportunities for these airlines as their competitors are reorganizing in bankruptcy. Latam has indicated it is scaling back its ambitions in the region, partnering with Azul in Brazil instead of competing there.
Overall, analysts are worried the pandemic could cause competition to be scaled back dramatically. That would be bad news for price-conscious travelers, but great news for the likes of Gol and Azul.
Just a few weeks ago, investors were talking about potential opportunities for Aeromexico from the Latam bankruptcy. COVID-19 is hurting every airline, and while Gol and Azul still look better than most, these are dangerous times to be investing in the industry.
Among Latin American carriers, Copa Holdings (NYSE:CPA) of Panama appears the safest bet, but its shares have not fallen as far as the Brazilian duo of Gol and Azul. Investors interested in buying in should tread carefully, and understand that even if the worst is behind us, the entire industry faces significant turbulence.