In a time where every sector is fighting to stay alive, the airlines and their related exchange traded fund (ETF), are unconventionally relying on consumer traffic to keep them afloat.
This is unusual because, in general, the majority of airline passengers are business travelers and not recreational travelers. Additionally, when slack numbers arise they are usually a result of consumer travelers cutting back and not a decline in business travelers. However, at a time where unemployment rates are increasing at alarming rates and businesses are trying to implement lean measures to cut costs, the business traveler is starting to become obsolete.
Consumer demand is still relatively low, but many are starting to splurge a little and spend a portion of their discretionary income on travel. Additionally, airlines have been slashing costs to entice travelers. These are great measures to attempt to fire a spark in a much battered industry; however, ultimately it will be load rates and an overall recovery in the economy that will make or break the airlines, states Kai Ryssdal of Marketplace.
For those of you who have traveled recently, it may seem like the occupancy rates on planes are extremely high. This may be correct, however, many airlines have cut the number of flights that they are offering, resulting in a decline in the overall number of passengers traveling. In the meantime, all the airlines can hope for is to keep what flights they are offering full.
On the positive side, fuel costs have declined dramatically from last year helping out the bottom line.
American Airlines (AMR) reported first-quarter losses that were lower than Wall Street expected, reports Ted Reed for TheStreet. Over the next week or two, other major airlines will release their earnings. The major airlines are expected to report losses in the billions of dollars and posting revenues lower than those seen after the Sept. 11 terrorist attacks in 2001.
An ETF that will be affected is the Claymore/NYSE Arca Airline ETF (FAA), which is up 23% over the last month.
Kevin Grewal contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.