On December 29, 2009 The Wall Street Journal carried an article titled "Brazilian Airline TAM Banks on Growth From New Fliers” that discussed the growth potential of TAM (NYSE:TAM) and the airline industry in Brazil.
TAM SA, the leading Brazilian airline, expects the domestic market to grow by 12% next year due to the continued growth of the Brazilian economy. The airline is implementing an innovative solution to attract first time-fliers by partnering with banks where customers can put down a low down payment and buy a ticket. The balance of the ticket cost is to be paid in monthly installments at the bank. This strategy of convenient payment option for purchasing tickets was originally developed by TAM’s competitor GOL (NYSE:GOL) four years ago. Since the majority of Brazilians still travel long distances by bus, TAM’s latest strategy may increase its market share and earnings in the coming years. Gol’s easy payment option has so far attracted some 1.8 million members.
TAM has also formed a new partnership agreement with Chile’s LAN airline to cross-sell tickets in each other’s domestic flights. Due to the strong performance of the Chilean economy and other Latin American countries, the LAN also may have higher growth in the future.
Latin American and China’s airline stocks have performed well this year. Next year may be another profitable year for airlines in emerging markets if the overall economy continues to grow. Current estimates for 2010 project that the economic growth in emerging markets will be higher than developed markets.
Five Emerging Market Airline Stocks with YTD performance as of Dec 31,2009 noon ET:
1. TAM (TAM)
YTD Change: 172%
2.Gol Linhas Aereas Inteligentes (GOL)
YTD Change: 255%
3. Lan Airlines (NYSE:LFL)
YTD Change: 109%
4.China Southern Airlines (NYSE:ZNH)
YTD Change: 82%
5.China Eastern Airlines (NYSE:CEA)
YTD Change: 132%