(Bloomberg) -- There was a period last year when investors had all but given up on the Brazilian airline run by David Neeleman, the man who made his name by founding JetBlue Airways years earlier. Bonds of his budget carrier, called Azul SA, had sunk to a mere 35 cents on the dollar, signaling investors were bracing for a painful default.Today, they trade at 93 cents.It’s a remarkable recovery that has handsomely rewarded anyone who had the courage to stick with the trade -- the bonds have returned 180% since hitting their lows -- and it highlights one of the more surprising turnaround stories of the pandemic. Latin America’s airlines, the hardest hit industry in what is arguably the region that has suffered more than any other from Covid-19, are suddenly coming back.Americans returning to the beaches of Cancun and revelers packing into the samba clubs of Rio de Janeiro are part of a pickup in leisure travel that’s filling airplane seats even as the virus rages. Air carriers have been the biggest beneficiaries in the bond market, but airport and hotel operators have also seen outsize gains from the depth’s of last year’s selloffs.“The market is looking at the light at the end of the tunnel,” said Shamaila Khan, director of emerging-market debt at AllianceBernstein in New York.It’s possible, of course, that the rallies have gone too far, too fast. Infections and deaths are soaring in many parts of the world, including Brazil, Mexico, Colombia and Peru. Skeptics such as Roger King at CreditSights Inc. point to questions over vaccination campaigns and the possibility of new travel restrictions.“I’m on the pessimistic side,” said King, a transportation analyst at the New York firm. “There’s a lot of X-factors out there that nobody knows anything about.”But at Azul, the pickup has been so dramatic that it expects to be operating with higher capacity than it had before the pandemic for local flights.Investors have been equally keen on one of Azul’s main competitors, Gol Linhas Aereas Inteligentes SA. Its notes due in 2025 have returned 175% since the Bloomberg Barclays Emerging Markets corporate bond index bottomed out in late March.The rallies are even more surprising because of how little government support the industry has received. While the U.S. and Europe rushed to bail out airlines, Latin American administrations offered almost zilch, and three of the region’s largest airlines -- Chile’s Latam Airlines Group SA, Colombia’s Avianca SA and Grupo Aeromexico SAB -- filed for bankruptcy. None of those carriers has emerged from court protection.The gains for companies that didn’t default are partially explained by broad market forces. As interest rates have dropped globally and the pile of negative-yielding debt has grown to more than $16 trillion, bond buyers are embracing risk and turning to the places where they can still find yield. Azul’s bonds pay 8.1%, while Gol’s benchmark notes offer a 9.9% yield, 9.5 percentage points more than equivalent-maturity Treasuries.“Latin America, with attractive rates, becomes an interesting destination for investors,” said Luis Gonzali, a portfolio manager at Franklin Templeton in Mexico City.Yet, the companies’ fundamental outlooks are also improving as governments roll out vaccine campaigns and passengers brush off the risk of contracting Covid-19 to travel again after months of isolation.Azul, Brazil’s largest domestic carrier, had cut capacity by 90% as the pandemic unfolded, slashed payroll by half and delayed delivery of new aircraft. Its bond prices collapsed as traders bet on bankruptcy.Its rebound has produced a windfall for investors like Ashmore Group, which became the largest reported holder after going on a buying spree in the third quarter, according to data compiled by Bloomberg.Few expected this turnaround back in April and May as the region began a descent into Covid chaos. Travel companies were among the first corporate victims, suffering deep losses without the kind of state support that has buoyed airlines and other travel businesses in developed markets.Still, investors are now finding value even in bankrupt carriers. The price of benchmark bonds from Latam Airlines, the region’s largest carrier, have jumped to 63 cents on the dollar from 17 cents at their low in May.Globally, Latin America’s airlines are also outperforming. The region’s November passenger load factors were the highest in the world at 74%, easily outstripping the 58% industry average, according to the International Air Transport Association.Other travel companies in the region are also riding a wave of economic optimism, despite more than half a million deaths from the virus across Latin America. Bonds sold by operators of airports in Ecuador and the Dominican Republic have rallied 88% and 42% since their respective lows.Even the debt issued to pay for a Mexico City airport that was never built is trading above face value, helped by a jump in revenue from passenger fees at the existing airport, which backs the notes. Traffic in Mexico’s capital surged to 2 million travelers in November. That’s still half the volume seen at the beginning of last year but up from a trough of 276,000 in May.In the lodging industry, defaulted bonds sold by Mexico’s Grupo Posadas SAB are rebounding as tourists return to Cancun, Los Cabos and other beach destinations, lured by discounts of as much as 60% at some of its resorts. The hotel operator missed interest payments in June after bookings collapsed, but its bonds have returned about 67% since then as investors bet on better restructuring terms.Celina Apostolo Merrill, a money manager at BlackRock Inc., said the Latin American airlines that have pulled through the pandemic without resorting to bankruptcy are in a good spot. She has a particularly favorable view on Brazilian carriers.“Our expectation is that you’ll continue to see spread tightening,” she said last week during a Fitch Ratings Latin America outlook webinar. “They’ve already rightsized appropriately or survived from a liquidity perspective.”(Updates with Latin American load factor figures in 18th paragraph. Updates prices throughout.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.