The U.S. Global Jets ETF (NYSEArca: JETS), the only dedicated airline exchange traded fund on the market today, is up almost 5% over the past two weeks and that could be the start of something more significant for the fund as analysts see tumbling oil prices benefiting airline stocks.
JETS’ catalysts include the predictable, such as low oil prices and robust demand for air travel, as well as compelling valuations and rising profits.
JETS tracks 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]
On Thursday, Credit Suisse boosted estimates for Delta Airlines (NYSE: DAL), American Airlines (NasdaqGS: AAL), JetBlue (NasdaqGS: JBLU) and Southwest (NYSE: LUV). Those stocks combine for over 41% of JETS’ weight.
“Credit Suisse’s Global Energy Economist lowered its Brent oil price forecast earlier this week with new lows, an extended trough, and lower end-points. Projections have been lowered to $54/bbl for 2015 (from $63), to $58/bbl in 2016 (from $76) and to $65/bbl in 2017 (from $80), reflecting ongoing global oversupply. We are aligning our assumptions with the new lower forecast,” said the bank in a note posted by Ben Levisohn of Barron’s.
Of course, oil, airlines’ largest input cost, is a pivotal part of the JETS story. 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.
However, some analysts believe a more normalized oil price could be beneficial to JETS and the airline stocks the ETF holds. With oil prices sliding to multi-year lows, some sell-side analysts think investors are not giving airline stocks enough credit for the benefits of lower fuel costs.
U.S. Global Jets ETF
