June 09, 2008 at 2:00 pm by Tom Lydon
With all the airlines’ woes, you’d think the transportation exchange traded fund (ETF) would be in the tank. But you’d be wrong.
Last week, the iShares Dow Jones US Transportation Average (IYT) closed at a record high. Trucking and rail has been picking up the slack for the fund, but the new heights attained by the fund can actually be attributed to the airlines this time around, thanks to an analyst upgrade. Gary Chase, an analyst for Lehman Brothers, bumped the sector to "positive," saying that the upside potential outweighed risks, reports Thomson Financial. IYT is up 15.9% year-to-date.
Daniel Michaels for the Wall Street Journal reports that the industry’s troubles haven’t gone global - yet. Despite cutbacks domestically, global carriers say their traffic is still strong. But the real test is yet to come as the summer travel season deepens. The uncertainty is largely because most people bought their tickets and made vacation plans months ago, and the more critical juncture will be at the end of summer.
The airline industry here is being hit by a number of factors, including the obvious problems of a weakening economy, higher oil prices and a weak dollar. The carriers here also fly some of the world’s oldest, most unreliable and least fuel-efficient jetliners. Carriers in other countries have long since upgraded, which has reduced their maintenance and fuel costs.
Well, as long as someone somewhere is getting a cheap flight…
For full disclosure, some of Tom Lydon’s clients own shares of IYT.
Tags | Transportation
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June 10th, 2008 at 5:27 pm
Is there a Railroad ETF?
June 11th, 2008 at 7:48 am
Cole,
At the moment, there isn’t. The closest thing to it is the ETF referenced in the post, IYT.
A quick scan of the ETFs currently in registration don’t show one to be in the works, but as soon as we get word of one, we’ll be sure to cover it!
July 14th, 2008 at 6:45 am
You said that the airlines fly some of the oldest most unreliable aircraft. That is not true, North West, still has it’s fleet of aging DC-9’s, and some of the airlines have older 737’s however those will greatly out last the new Airbus A320 series, those will be the aircraft that will be taking the pilots of the 320 series back from the desert, when they deliver them to storage. These aircraft built by Boeing and McDonnnell Douglas, were built to stand the test of time, and last. As long as they are maintained they will be reliable, when maintenance is sacrificed however, they become unreliable. As for most of the other airlines they have modern Boeing and Airbus fleets, that are as fuel efficient as the market offers.