The global recession has really taken its toll on the airline industry and its exchange traded funds (ETFs).  As earnings season is in full swing, how does one analyze the industry?

Most investors will be looking at whether or not the airlines beat Wall Street’s expectations and what plans they have to cut costs and increase revenues for the remainder of the year.  These are great indicators of just how healthy these companies will be, but Matthew Craft of Forbes says that is all about how much cash these companies have on their balance sheets.

Of the four major airlines, Southwest (LUV) is the only one expected to show a profit.  It’s the largest component in the airline ETF, which could help the ETF along some. As for the other three, they carry heavy debt loads and speculative-grade credit ratings.

Although the industry still remains fragile and uncertain, some airlines performed a bit better than expected.  Excluding one-time hedging gains, United Airlines (UAUA) reported a quarterly loss of $2.23/share, lower than analysts’ expected.  Southwest beat analysts’ expectations as well, reporting earnings of $0.08/share, however saw revenue drop by 8.8%.  Continental Airlines (CAL) reported saw a decline in revenue by 23% and posted a loss $1.36/share.

Weak demand and volatile fuel prices have forced all major carriers to trim expenses by slashing jobs and reducing the number of flights.

  • Claymore/NYSE Arca Airline ETF (FAA): up 3.2% year-to-date; LUV 15.4%; Continental 14.5%

For more stories on airlines, visit our airlines category.

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.