Is Airline ETF Ready To Take Flight? (FAA)

The Claymore/NYSE Arca Airline ETF (NYSE: FAA) isn't heavily traded and doesn't generate much in the way of headlines considering that is top holdings are always making news, so the ETF Professor thought it might be a good idea to take a look at this ETF.

This isn't the easiest sector to invest in. Most airlines are cash-strapped and held hostage to energy prices and other factors such as swine flu. Now, some major airlines are charging additional fees for travelling during peak travel days on top of those annoying baggage fees.

With consumers looking to save cash, holiday travel is expected to decline this year. In fact, 2009 will likely be the first year in over a decade that holiday travel is down, costing airlines over $4 billion in the process.

That makes FAA look richly valued. The ETF is up 20% year-to-date, lagging the S&P 500 by 10%. FAA's bullish run may be grounded after the airlines start reporting fourth-quarter earnings, meaning an opportunity for a short may appear in the coming months.

FAA's top holdings are Delta Airlines (NYSE: DAL), Continental (NYSE: CAL) and Southwest (NYSE: LUV).