The airliner industry has pushed back above both its short-term and long-term moving trend lines, and the airlines-related ETF suddenly experienced a sharp tailwind after an industry leader revealed a more optimistic outlook.
Shares of Delta Air lines (NYSE: DAL) surged 6.6% Tuesday, its largest one-day gain since January 2015, after the country’s largest airline by market value projected consolidated passenger unit revenue for the third quarter to rise 2% year-over-year.
While some may see this growth as a modest projection from its previous 2% to 3% growth range given just a month ago, investors should keep in mind that the previous guidance was given before the hurricane season’s Harvey, Irma and Maria barreled through the Gulf Coast and the Caribbean. All in all, Delta’s estimates look much rosier than many had previously anticipated in light of the devastation caused by the severe storm systems.
Delta revealed that Hurricane Irma by itself forced the airliner to cancel some 2,200 flights between September 7 through 12 at an estimated $120 million in lost opportunity cost to its third quarter pre-tax profit. Nevertheless, the financial cost was less severe than expected and provided a well-needed tailwind to a flagging airline industry.
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Any negative impact from the hurricane season will likely be short-term in nature as the industry quickly readjusts. Looking past the effects of the hurricanes, Delta’s overall guidance was a positive for the industry and suggests pricing trends could stabilize after the short-term hiccup.
Investors also shared in this sentiment as most other airliner stocks also rebounded on Delta’s outlook. For instance, American Airlines Group (NYSE: AAL) jumped 5.8%, United Continental Holdings (NYSE: UAL) rose 6.1%, Southwest Airlines (NYSE: LUV) gained 4.5% and JetBlue Airways (NYSE: JBLU) increased 7.1%.
Investors interested in flying with the airline industry can consider the U.S. Global Jets ETF (NYSEArca: JETS), the lone ETF dedicated to airline stocks. JETS strengthened by 4.1% Tuesday after Delta’s announcement.
JETS follows the U.S. Global Jets Index, which uses fundamental screens to select airline companies, with an emphasis on domestic carriers, along with global aircraft manufacturers and airport companies.
The ETF follows a kind of smart beta indexing methodology that allocates about 12% to the top four domestic airlines, followed by a 4% tilt toward the next five domestic airlines, 3% position in the next four domestic airline industry companies and lastly a 1% weight in the top 20 foreign airline industry companies. Top holdings include AAL 12.2%, DAL 12.0%, LUV 11.9%, UAL 11.6% and Alaska Air Group (NYSE: ALK) 4.1%.
For more information on airline ETFs, visit our Airline category.