Market Overview

Airline ETF Endures Oil's Rebound

Airline ETF Endures Oil's Rebound

The United States Oil Fund (NYSE: USO) is up more than 22 percent just since the start of the fourth quarter — but oil's recent resurgence is not plaguing airlines stocks.

Just look at the US Global Jets ETF (NYSE: JETS), which is sporting a fourth-quarter gain of just over 8 percent.

With fuel being the top input cost faced by the airline industry, the recent performance of JETS is particularly notable and deals a blow to the long-held theory that airline stocks are vulnerable in the face of rising oil prices. Fortunately for JETS, higher fuel costs are not denting holiday travel.

“Higher fuel costs aren’t expected to discourage domestic travel, though. This Thanksgiving season, approximately 51 million Americans were projected to travel 50 miles or more from home on U.S. roads, highways, airlines, rails and waterways, according to US Global, citing the American Automobile Association.

Flying Higher

The underlying index for JETS, the U.S. Global Jets Index, “uses a smart beta strategy to track the global airline industry. The index uses fundamental screens to determine the most efficient airline companies” according to US Global. JETS is up more than 4 percent over the past week, reflecting some encouraging data regarding Thanksgiving travel.

“Looking at air travel alone, a record 28.5 million passengers were estimated to take to the skies this year during the 12-day Thanksgiving period, according to Airlines for America. That equates to an additional 2.38 million passengers a day,” the ETF's issuer said. 

Those data points equate to lots of add-on revenue opportunities for airlines, such as checked bag fees. Annoying as they may be, checked bag fees are a major revenue stream for airlines and help these companies not only bolster their cash positions, but weather high oil prices, too.

Bullish Outlook

With the economy improving and consumer sentiment running high, airline executives are bullish on their industry's future.

“According to October’s Airline Business Confidence Survey, conducted by the International Air Transport Association, 80 percent of airline chief financial officers said profits improved in the third quarter compared to the same three-month period in 2016,” said US Global.

That ebullience comes as airline stocks remain cheap. JETS sports a price-to-earnings ratio of just 10.8, a significant discount to the S&P 500.

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Posted-In: Long Ideas Sector ETFs Commodities Travel Markets Trading Ideas ETFs General Best of Benzinga


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