The company’s aggressive growth strategy allowed for the agreement of seven contracts with different airlines regarding the lease of 17 new aircraft. Most of the contracts were signed for periods of twelve years, which is above the current leasing term mean of 7.1 years. The company’s future revenue should increase due to strong demand for its airplanes.
Furthermore, Southwest Airlines Co. (NYSE:LUV) and Spirit Airlines Incorporated (NASDAQ:SAVE) lease aircraft from Air Lease Corp (NYSE:AL). Air Lease should increase its market share in the United States because Southwest Airlines and Spirit Airlines Incorporated (NASDAQ:SAVE) are witnessing higher demand according to their most recent monthly traffic reports.
Southwest Airlines Co. (NYSE:LUV) increased its revenue passenger miles (RPM) by 1.5% to 8.75 billion, while Spirit Airlines Incorporated (NASDAQ:SAVE) increased its RPM by 13% to 898 million. These companies are taking significant market share from major carriers, and strong demand will likely benefit Air Lease Corp (NYSE:AL) in the form of new lease contracts.
In addition, sometime in the near future, Southwest Airlines Co. (NYSE:LUV) and Spirit Airlines will have to renew their fleet to get their hands on more fuel-efficient, comfortable, and modern aircraft. The carriers will reduce their overall operation costs by leasing the aircraft from Air Lease as opposed to buying them, as it is more cost-effective for the airlines. Since these companies already have contracts with Air Lease, it is possible that they could get better leasing terms, further benefiting the carriers. I foresee a win-win situation for Air Lease and the carriers.
Airbus and Boeing benefit from new orders
The strong demand for new airplanes should also bring new orders for aircraft builders such as Airbus and The Boeing Company (NYSE:BA). The Boeing Company (NYSE:BA)’s B737-800 was preferred by Air Lease over its close competitor Airbus A320. Two advantages that the B737 has over the A320 are the increased seat capacity and better range. However, according to some reports, the A320 has gained popularity, especially in the European Market. Nevertheless, new orders from aircraft leasers will push revenues higher for Airbus and The Boeing Company (NYSE:BA)!
Foolish conclusion
The answer to the question of the headline is, as Dr. Sheldon Cooper would say, “Bazinga!!” Carriers are opting towards the leasing of new aircraft as opposed to financing them, because most of them are submerged in debt and the interest rates are not in their favor.
For this reason, Air Lease is positioned for growth going forward. The airline industry is improving its fundamentals, and passenger traffic is increasing across the map. I believe Air Lease should be considered for a long position to gain exposure to the airline industry.
The article Another Way to Invest in the Airline Industry originally appeared on Fool.com is written by Robinson Roacho.
Robinson Roacho has no position in any stocks mentioned. The Motley Fool recommends Southwest Airlines. The Motley Fool owns shares of SPIRIT AIRLINES INC. Robinson is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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