Airline stocks and the U.S. Global Jets ETF (NYSEArca: JETS) have been struggling this year, but some analysts are forecasting increased demand as the summer travel season moves forward.
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.
Cowen & Co.’s Helane Becker “expects demand to improve this month and remain strong through the summer, given that the airline industry’s projected to see record travel this year,” reports Teresa Rivas for Barron’s.
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).
The Oil Issue for Airlines
High oil prices have been confounding the airline industry this year as fuel costs are the largest input cost faced by the industry. However, the improving U.S. economy could also encourage more business and leisure travel and airlines are generating impressive amounts of cash. Additionally, oil prices have recently given back some gains.
Related: Get on Board the Airlane ETF This Summer
United, one the largest holdings in JETS, said last week it will start charging some customers flying to Europe $60 to check an additional bag. Some airlines are doing away with services that were once free on select flights and charging passengers for those privileges as a way of boosting revenue.
Airlines also attractively valued relative to the broader domestic equity market. JETS is trading at a 10.0 price-to-earnings and a 2.2 price-to-book, compared to the S&P 500’s 16.9 P/E and a 2.8 P/B.
“Airlines, including United and Southwest, have revised their capacity plans for 2018, and she expects both American and Delta will do so as well when they report second-quarter earnings in July,” Barron’s reports citing, Becker, the Cowen analyst.
For more information on the airline ETF, visit our Airline category.