Deutsche Bank analyst Michael Linenberg sees a lot of potential for Latin America’s carriers, even as regional economic growth slows.
The region’s airlines have been consistently profitable since 2009, even when those in other areas reported losses, and are on track to about $600 million in profits this year and about $1.1 billion in 2014, he says.
"This is a market where there is a lot of potential," says Linenberg. “That said, you can have a lot of potential but you still need the underlying macro environment to be strong."
He recalls forecasting economic growth above 3% for Latin America in 2012 at last year’s ALTA Airline Leaders Forum but notes actual growth fell short of that figure, based on Deutsche Bank data. He cites slowing economies in Brazil and Mexico for the lower growth.
Regional economic growth for this year will come in at about 2.7%, before breaking 3% again in 2014, predicts Linenberg.
Latin American airlines should watch out for slower economic growth in China and the impact of the US Federal Reserve’s potential quantitative easing programme, he says.
China is a large trading partner of the region and slower growth could mean lower imports, impacting the region’s mineral exports.
Quantitative easing has the potential to disrupt local currencies against the US dollar, hampering business activity in the region. Linenberg cites the fact that both the Brazilian real and Mexican peso weakened against the US dollar when the Fed first considered the programme earlier this year.
"As we move into this taper, hold on to your seats," he says. The Fed is likely to consider the programme again at its meeting in December.