Summer time is right around the corner, marking a time when millions of Americans takeoff and enjoy some well needed R&R. The increased travel could also translate to improved earnings for the transportation industry, namely airline stocks and related exchange traded funds.
“Summer is nearly upon us, and that means increased domestic and international air travel as American families go on vacation. The U.S. economy is humming, with unemployment below 4 percent and median household income on the rise, and so we anticipate yet another season of robust, profitable air passenger demand,” according to U.S. Global ETFs.
American airlines are expected to fly a record 236.1 million people between June 1 and August 31, an increase of 3.7 percent since last summer, CNBC reports.
“As the economy grows along with household net worth, passengers are taking advantage of persistently low airfares for their summer travel plans,” John Heimlich, vice president and chief economist at Airlines for America, told CNBC.
Why the Airline ETF is Taking Flight
A combination of relatively low ticket prices and a strong economy with high consumer confidence have convinced more it’s time to take flight for their summer hiatus. Meanwhile, in an attempt to meet that demand, airlines have added more flights. Airlines for America anticipates carriers will add an additional 116,000 seats per day this summer to accommodate the 96,000 additional daily passengers.
However, some are wary about rising fuel costs with crude oil at $70 per barrel. According to the U.S. Energy Information Administration (EIA), fuel costs continued to rise alongside oil during the quarter. Notably, kerosene-type jet fuel prices averaged $1.88 per gallon, up close to 8% from $1.74 in the December 2017 quarter, and up 25% from $1.50 in the first three months of 2017.
“Historically, though, higher fuel costs haven’t necessarily been such a headwind for airlines,” according to U.S. Global ETFs. “Airline stocks, as measured by the NYSE Arca Airline Index, appreciated even as the price of oil was rising or trading in the $100 to $120 range.”
Investors interested in gaining exposure to the airline industry for the busy months ahead may look to the U.S. Global Jets ETF (NYSEArca: JETS), the lone ETF dedicated to airline stocks, to access the growth opportunity.
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. Top holdings include United Continental (NYSE:UAL), Delta Airlines (NYSE:DAL), Southwest Airlines (NYSE:LUV), American Airlines Group (NYSE:AAL) and Allegiant Travel (NYSE:ALGT).
For more information on the airline ETF, visit our Airline category.