The air-transport industry was pounded by the global recession but is on the upswing. Here’s how to play the emerging recovery.

Airlines have faced significant headwinds during the past two years. The global recession prompted many families to vacation closer to home, and employers cut back on business travel. According to data compiled by the International Air Transport Association, those trends pushed the airline industry to an aggregate $11 billion loss in 2009.

This year is likely to be tough as well; air travel still has a long ride to reach its peak again, but revenues are expected to rise around 5 percent from year-ago levels. And forecasts issued by a range of companies along the long aircraft value chain—from materials outfits and plane manufacturers to airline operators—are considerably rosier. If you’ve flown recently, you’ve likely noticed that planes along most routes are operating at or near capacity.

The industry has clearly turned a corner, setting the stage for more aircraft orders and improvements in profitability. It’s led to some nice gains for us in Babcock & Brown Air (NYSE: FLY) and Ctrip.com International (NSDQ: CTRP). Here are three high flyers that we expect to perform well as air travel starts it engines again.

Distribution Channels

The Internet forever changed how travel companies do business. Online brokers shook up the industry with their flexibility and superior cost structures.

Big names such as priceline.com (NSDQ: PCLN) and Ctrip.com International (NSDQ: CTRP) dominate their domestic markets, but the market for e-travel continues to expand in emerging economies, and opportunities for smaller players abound.

China is a case in point. Investors have latched on to Ctrip.com as a play on China’s growing middle class, but it’s not the only outfit that shows promise.

One undervalued stock and overlooked company is Universal Travel Group (AMEX: UTA), a leading  travel services provider in China. Many pigeonhole the firm as a smaller version of Ctrip.com, but its unique business model sets it apart from its better- known peer: 67 percent of its revenue comes from packaged tours; air ticketing accounts for 18 percent; and 13 percent comes from hotel booking

The company continues to strengthen its product portfolio, brand name and geographic footprint. Universal Travel recently acquired three travel service providers for a total of $13 million. With lots of cash, little short-term debt and no long-term debt, the firm is primed to grow through acquisition. By 2020 China is expected to become the world’s largest international tourism destination and the largest domestic tourism market; operating in such a rapidly growing region bodes well for future growth.

Efficient Materials

Lighter, faster and more fuel-efficient aircraft are the way of the future. And companies able to produce the materials and components in these next generation planes stand to benefit.

Hexcel Corp (NYSE: HXL) is a pure play on carbon fiber and composites. Carbon fiber is a light but sturdy material that lends itself to a variety of applications, including aircraft and wind turbines. Hexcel’s technologies feature prominently in Boeing’s (NYSE: BA) 787 Dreamliner, one of the first next generation planes.

The company’s net sales declined in the first quarter, but management expects the commercial aerospace market to recover slowly and is optimistic about its position in the industry. This segment accounted for 45 percent of total sales. Orders from Boeing and Airbus grew 10 percent.

Hexcel should reap the rewards as the aerospace industry transitions to lighter and more fuel-efficient aircrafts.

Spirit AeroSystems Holdings (NYSE: SPR) is the world’s largest independent manufacturer of commercial aircraft parts and a leader in aerostructure design. The company offers a diversified portfolio of products, including fuselages, the component that encases freight and the people aboard; underwing components; wings; and nacelles, the encasing for aircraft engines.

The company has several clients, but Boeing and Airbus are its biggest customers. Both have long-term contracts with Spirit for existing and prospective aircraft.

Last year’s financial results were disappointing, but the company enjoyed strong demand for its main products. Spirit AeroSystems’ prospects will improve as the economy and travel industry rebound.

Toward the end of 2009, Spirit passed four new programs into the flight-test phase. This year, two more programs are scheduled to begin flight tests.

Honeywell International (NYSE: HON) is a major manufacturer of jet engines and flight navigation systems for business and regional jet aircraft. That’s an extremely attractive market simply because the competition isn’t quite as intense–there’s no General Electric (NYSE: GE) or United Technologies (NYSE: UTX) dominating the space.

Honeywell’s aerospace business generates about a third of the company’s revenues, and the firm has a small presence in specialty materials. But it’s a broadly diversified multinational operation with businesses in automation and controls and transportation systems.

Revenues in the aerospace segment have dropped sharply over the past two years, as demand for business planes and smaller aircraft plunged. But there’s been a resurgence of new plane orders in the US, and demand continues to grow in Asia and the Middle East.

These tailwinds, as well as the firm’s recent selection to be a major supply of mechanical systems for the Airbus A350, should be a major revenue driver for Honeywell.

Benjamin Shepherd is the editor of Louis Rukeyser’s Wall Street and co-editor of the recently launched Global ETF Profits. Hannah Hsu is research editor of Louis Rukeyser’s Wall Street.