Airline stocks and sector-related ETF may continue to fly as strong fundamentals support the industry.
The U.S. Global Jets ETF (NYSEArca: JETS), the only available pure-play fund that focuses on the global aviation industry, rose 1.6% on Tuesday and was testing both its long- and short-term resistance at the 200- and 50-day simple moving average.
Airline stocks were most likely strengthening Tuesday after the plunge in crude oil prices, following President Donald Trump’s denunciation of Saudi Arabia and OPEC’s plans to cut back production. The falling crude oil prices would be a boon for the airline industry’s bottom line or reduce fuel costs.
Looking further out, many anticipate continued strength for the airline industry. For example, Goldman Sachs anticipates strong revenue trends in 2019 to coincide with a heightened focus on cost controls, according to Seeking Alpha.
Following the earnings season wrapped up for major U.S. airline names at the end of October, J.P. Morgan analyst Jamie Baker argued for a bullish outlook, adding that “the case for industry margin expansion remains the best we’ve seen in four years.”
“The current setup looks highly compelling to us. 2019 capacity is anticipated to be tighter than 2018 (~3.5% versus ~4.5%), and we remain of the view that further cuts are likely in the event fuel rises from here,” Baker said in a note.
U.S. Sector Strength
Citi sees sector strength in the U.S., which could help offset unit revenue pressure in international markets.
Macquarie also added on to the positive outlook in response to the third quarter earnings for the sector, according to Investopedia.
“Generally speaking, we believe we are seeing the continuation of a strong demand and revenue environment into the end of the year, lending itself to fare increases and ancillary opportunities,” Macquarie analysts said.
Overall, analysts project clear skies for the airline industry in the year ahead, bolstered by better outlooks for margins, capacity and fuel prices, according to Barron’s.
For more information on the airline ETF, visit our Airline category.