Wealth Creation Driving Airline Sector Higher

|
 |  Includes: BA, BEAV, JBLU, LMIA, SPR, UAL
by: Profit Confidential

By George Leong

The Boeing Company (NYSE:BA) has proved that the airline sector is continuing to progress, after the stock easily beat on both its revenues and earnings in the first-quarter earnings season.

Strong wealth generation in emerging markets in China and Asia are a major factor for the airline sector's growth. Add in the global economic renewal, and you have an increased demand for air travel. The growth in Asia is particularly strong and will help to drive up the demand for capacity and routes, which will translate into more planes needed.

The airline sector was nearly dead following the tragedy of 9/11, but it has since made a steady recovery. In fact, the airline sector is on target for its second straight year of higher profits, according to research by the International Air Transport Association (IATA).

IATA suggests that North America will hold onto its title as the biggest airline sector market worldwide, with expected profits of around $8.6 billion in 2014. In second place will be the Asia-Pacific airline sector, earning about $3.7 billion, and Europe is expected to come in third with an estimated $3.1 billion. (Source: "Industry on Track for Second Year of Improving Profits - Rising Fuel Costs Largely Offset by Increased Demand," International Air Transport Association web site, March 12, 2014.)

The evidence is reflected on the chart of the Dow Jones US Airlines Index below, which shows the steady uptrend since November 2012 and a bullish "golden cross," based on my technical analysis.

Click to enlarge

Chart courtesy of www.StockCharts.com

While Boeing is one of the top plane makers as far as wide-body jets go, I also like the providers of new and retrofit parts to the airline sector, such as B/E Aerospace, Inc. (NASDAQ:BEAV), Spirit AeroSystems Holdings, Inc. (NYSE:SPR) and LMI Aerospace Inc. (NASDAQ:LMIA).

As far as airline sector stocks go, one of my favorite airlines that I like to travel on is the discount carrier JetBlue Airways Corporation (NASDAQ:JBLU). The company was formed in 1998, and currently serves markets in the United States, Puerto Rico and Mexico, along with 10 countries in the Caribbean and Latin American regions. In March, the airline's key revenue passenger miles reading came in at 3.24 million for an 84.8% load factor. (Source: JetBlue Airways Corporation web site, last accessed April 24, 2014.)

Click to enlarge

Chart courtesy of www.StockCharts.com

For a global aviation play, take a look at United Continental Holdings, Inc. (NYSE:UAL), which was formed from the merger of Continental Airlines and United Airlines in 2010.

Click to enlarge

Chart courtesy of www.StockCharts.com

The company offers around 5,341 daily flights to more than 360 airports on six continents. Revenues are predicted to rise 3.5% to $39.63 billion this year, followed by $41.36 billion in 2015, up 4.4% year-over-year, according to Thomson Financial.

Disclosure: None.