When travelers and investors think about the airline industry, their attention remains captivated by big names like United Airlines (NASDAQ:UAL) or Delta (NYSE:DAL). After all, these airlines operate the most exciting routes and aircraft, with flashy first-class amenities and branded credit cards.
Moreover, these major airline companies provide some of the highest profile and potentially profitable investment opportunities on the stock market. However, there’s a subdivision of the industry that savvy aviation investors should consider — regional airline stocks.
Regional airlines often fly under the radar. In fact, in most cases, consumers can’t even buy tickets for a regional airline. Rather, these airlines allow major airlines to slap their name on their routes, or in some cases, use their pilots.
This means the more remote routes travelers take might carry the United Airlines name, but are operated by an independent company.
Skywest Airlines (SKYW)
A genuine success story in the world of regional airline stocks, Skywest Airlines (NASDAQ:SKYW) has consistently outperformed the market. Despite the general malaise of the stock market since the start of April, SKYW has grown by 8.6% in the last month.
What is it that has kept this airline’s performance strong, despite the tumultuous recent years of the air travel industry?
The company operates mainly two aircraft models: the Bombardier/Canadair Regional Jet and the Embraer Regional Jet. Both aircraft are exceptionally fuel efficient for their routes, and the ERJ’s Brazilian heritage keeps its maintenance expenses lower. Though these aircraft are hardly head-turners on the runway, they allow Skywest to operate shorter-haul and low-capacity flights effectively.
This positions Skywest as a critical support to major airlines that use their brand name to sell less common routes. Those airlines can then route passengers at regional airports via connecting flights to their larger hubs.
Frontier Group Holdings (ULCC)
As the parent company of a low-cost domestic airline, Frontier Group Holdings (NASDAQ:ULCC) remains a stable member of the industry. Though not a regional airline by the industry definition, Frontier maintains routes specifically for providing low-cost service to Denver, Colorado. Thus, Frontier competes directly with Spirit Airlines (NYSE:SAVE), and it’s for this reason it deserves a closer look from investors.
With its major competitor, Spirit, currently furloughing pilots and closing routes, Frontier’s potential grows by the day. The company also exclusively operates the Airbus (OTCMKTS:EADSY) A319, A321 and A320 families of aircraft. This insulates it from the current maintenance issues that other airlines that rely on the Boeing (NYSE:BA) 737 platform are experiencing.
In turn, Frontier exhibits less risk for groundings due to aircraft manufacturing errors and will likely gain a reputation boost. Though the company is undergoing some profitability issues and revenue cost increases, it has the potential to corner the domestic market over time.
Mesa Air Group (MESA)
Currently trading under a dollar, with a market capitalization below $50 million, Mesa Air Group (NASDAQ:MESA) could become lucrative. Essentially a penny stock within the regional airline stocks category, MESA operates on a smaller scale than its regional competitors. By focusing on the CRJ aircraft platform, MESA has formed a close relationship with United Airlines as a regional operator.
Furthermore, the company has extensively restructured its financial operations over the past year. Two examples are its agreement with United to improve its operating rates and an asset sale program for debt reduction. With a higher payment from United, MESA will generate an additional $63.5 million in incremental revenue over the next 12 months. Then, with the sale of its excess CRJs, the airline will generate $198 million in proceeds to pay $174.3 million in debt.
Though currently a small regional airline, MESA could potentially soar in profitability and value once unburdened by debt.
On the date of publication, Viktor Zarev did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.