The airline exchange traded fund (ETF) Guggenheim Airline (NYSEArca: FAA) could see some take off this year on continually improving passenger demand. But will high gas prices send it skidding off the runway?
The Federal Aviation Administration released its annual travel forecast on Tuesday, a report that covers the next 20 years. In 2011 alone, airline travel is expected to go up to 3.5%. [Blizzard 2010: Will the Airline Industry Get Snowed In?]
There could be some ancillary benefits to the growing number of travelers, too.
For one, David Koenig for Yahoo Finance reports that the increase in travel will also the need for changes including a new satellite-based air traffic control system to replace the current radar-based technology. This could lead to more revenue for other sectors, as well.
By 2021, U.S. airlines are expected to fly 1 billion passengers per year, reaching that mark faster than what had originally been forecast.
All that extra passenger traffic may have another benefit, too: fares are going up, and the average flier now is expected to pay 2% more. Tack on the many fees airlines charge and it translates into a nice profit. [The Airline ETFs Double Whammy.]
The big risk to watch for airlines is what’s going on now: tension in the Middle East and economic recovery has been sending gas and oil prices soaring. Fuel is the largest cost for airlines. Though they generally hedge price spikes by buying futures contracts, if costs go up much further, they could be in for some hurting.
Tisha Guerrero 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.