I'm going to do something I thought I'd never do -- recommend an airline stock. Like many investors, I've never liked airline stocks because they're ridiculously volatile and notoriously easy to lose money on.
Take the nation's fifth largest airline, U.S. Airways Group (NYSE: LCC). U.S. Airways has gone bankrupt twice in the past decade. Yes, the stock has done nicely in the near term, returning almost 40% a year during the three-year period ended Oct. 18, 2012. But the trailing five-year return is a dismal negative 15.8%. The company's main rivals have been awful longer-term investments, too, as the table below shows.
Notably, the table doesn't include one well-known company -- American Airlines Inc., which filed for bankruptcy in November of last year. Currently, the stock only trades over the counter for around 37 cents a share. It's not something you'd buy anyway, since bankruptcy usually renders a company's existing common shares worthless. New shares will be issued later if the company survives bankruptcy.
As always, the main risk with airline stocks is intense competition resulting in wafer-thin profit margins. Indeed, the industry's combined net profit margin is a pitiful 2.8%. Net margins for the individual companies in the table above are pretty much the same, ranging from just 2% to 3.3%.
[More from StreetAuthority.com: ]
But what if I told you I found an airline that's not only profitable, but is greater than five times more profitable than the typical industry player, with a net margins averaging an astounding 15.5% during the past nine years? Would that grab your attention?
Well, the uncommon profitability of the Panama City-based airline company Copa Holdings SA (NYSE: CPA) sure grabbed my attention. It also made me want to know more about how Copa can do so well in an industry where declaring bankruptcy has actually become a commonplace business strategy.
A big reason is the company's operating territory -- 295 daily flights to 59 destinations in 28 countries of North, Central and South America and the Caribbean. Basically, Copa is in a fast-growth region where the air travel industry is still on the rise, not saturated like in the United States, and direct competitors are much fewer in number. Indeed, no single competitor serves all the same routes as Copa, so it can often charge a premium. Meanwhile, U.S. airlines struggle to get by competing on prices in a crowded field with a reputation for terrible service.
[More from StreetAuthority.com: ]
Copa has a reputation for being particularly convenient for business travelers in a hurry, because the company can treat connecting passengers like they're on a domestic flight, even if they're passing through one or more countries. This means business travelers don't have to spend extra time getting visas or going through customs (unless they leave the airport).