With fuel costs at their lowest in over five years, airplane-related transportation exchange traded funds could continue to soar during a typically slow period for vacationing.
While there are no longer any airline industry-specific ETFs on the market – although, that may be subject to change soon, investors can still get their fill with investors with transportation-related ETFs, including iShares Transportation Average ETF (NYSEArca: IYT) and the SPDR S&P Transportation ETF (NYSEArca: XTN), which include a 17.1% and 26.4% sector tilt toward airlines, respectively. Over the past year, IYT rose 20.3% while XTN increased 22.9%. [A New Airline ETF Could Take Flight]
United Continental Holdings (NYSE: UAL), Southwest Airlines Co. (NYSE: LUV) and Alaska Air Group (NYSE: ALK) anticipate that costs for jet kerosene, which makes up about a third of a carrier’s operating expenses, would average less than $2 this quarter, the lowest price level since the second half of 2009, Bloomberg reports.
IYT includes a 4.8% tilt toward UAL, 4.7% in ALK and 3.1% in LUV. XTN includes ALK 2.8%, UAL 2.6% and LUV 2.4%.
“The big news is what these guys are going to be paying for jet fuel in the first quarter,” Michael Derchin, an analyst at CRT Capital Group, said in the article. “For the first time we’re seeing an official forecast for under $2.”
Derchin pointed out that airlines rarely generated a profit in the fourth or first quarters, but with low oil prices here to stay, airlines are raising their outlook.
“We’re now seeing airlines able to make more every quarter of the year,” Derchin added.
Airlines have also reported record fourth quarter earnings on soft oil prices. For instance, Southwest revealed profit rose a better-than-expected 71%, United announced an 86% rise in profits and Alaska Air said profits were 62% higher.
iShares Transportation Average ETF
For more information on the airlines sector, visit our airlines category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own shares of IYT.