Why the New Airline ETF Could be a Success

After an almost two-year absence, investors finally have a dedicated airline exchange traded fund to consider. The U.S. Global Jets ETF (NYSEArca: JETS) debuted last Thursday.

For the moment, JETS appears to be a well-time launched. Sure, oil prices have recently rebounded with the United States Oil Fund (NYSEArca: USO) surging 16.2% over the past month. However, USO still resides about 85% below where it traded in August 2013 when what was then the only airline ETF on the market closed its doors.

When it comes to airlines’ costs, it is all about fuel and labor. Focusing on the former, the near-term outlook for JETS is compelling. First-quarter pre-tax profits for airlines, by at least one estimate, could surge fivefold thanks to lower oil prices.

Deutsche Bank “estimates that nearly 110 percent of the earnings gain will derive from lower fuel prices. It states that ‘the industry over the past several years has demonstrated its ability to successfully offset most, if not all, of the rise in fuel expense via a combination of cost savings and various revenue initiatives,’” according to U.S. Global Investors CEO and Chief Investment Officer Frank Holmes.

JETS tracks the U.S. Global Jets Index, which is comprised of U.S. and international passenger airline companies, aircraft manufacturers and airports and terminal services companies. The universe of airline companies around the globe is screened for investability, a minimum market cap of $100 million and liquidity. The underlying index will hold between 30 and 35 airline companies. [New Airline ETF Takes Off]

Over 46% of JETS’ combined weight is allocated to Delta (NYSE: DAL), Southwest (NYSE: LUV), new S&P 500 member American (NYSE: AAL) and United Continental (NYSE: UAL). Delta has topped EPS estimates for eight consecutive quarters and American’s CEO is so bullish on his company that he has asked to be compensated solely in company stock, notes Holmes.