Oil prices tumbled again on Tuesday with West Texas Intermediate futures sliding 3.5% to $28.39 per barrel. Falling oil prices have been widely cited as one of the reasons global equity markets have faltered to start 2016, but there are some corners of the market that benefit from low oil.
An obvious candidate includes the U.S. Global Jets ETF (NYSEArca: JETS), the only dedicated airline industry-related ETF on the market. As seasoned airline investors, fuel is the largest input cost for airlines. Although JETS has not been immune to the broader market slump this year, the airline ETF has outpaced standard industrial and transportation ETFs to start 2016.
Along with lower oil prices, airline stocks look attractive in their own right. For instance, income-oriented investors may notice that airline stocks have seen improved dividend-yield growth. Additionally, the sector shows relatively cheap valuations. Airline stocks have a 7 times price-to-earnings ratio, whereas the broader transportation stocks have a 15 times ratio and the S&P 500 index shows 17 times P/E.
“Airlines can look forward to continuing low oil prices for at least this year, helping to boost profits and drive demand for travel, but need to be wary of a swift rebound and focus on staff costs, experts said at a conference on Monday,” reports Reuters.
The airline industry started to take off in 2013 as major carriers began to cut costs and enacted better pricing disciplines, and the sector surged last year after oil prices plunged, reports Johanna Bennett for Barron’s.