Investing in airlines can be tricky business. Even the legendary Warren Buffett has been vexed by airline stocks in the past.
The coronavirus pandemic reminded investors that stock picking among airlines is difficult, and investing directly in the group can lead to more volatility than expected when global economies swoon.
With those factors in mind, the ALPS Global Travel Beneficiaries ETF (NYSEARCA: JRNY) could prove to be a well-timed new exchange traded fund because it offers investors airline exposure while embracing other travel and leisure industries, such as casino and cruise operators and high-end retailers.
The new ETF tracks the S-Network Global Travel Index, which provides a deep bench relative to older travel and leisure-related benchmarks. The variety of industries represented in JRNY is important because some travel segments, including airlines, are feeling the effects of the Delta variant of the coronavirus. However, the longer-term outlook for the industry is more encouraging.
“Longer-term industry forecasts, however, point to strong underlying fundamentals and expectations for air travel demand to return to pre-pandemic levels within the next couple of years,” says Alerian analyst Roxanna Islam. “With returning strength in airline demand, hotels and the rest of the travel and leisure industry could benefit from the updraft, providing an opportunity for investors with a broad-based position in the travel industry.”
While there’s evidence that the reopening trade took off in the first half of the year and that airline bookings surged in the first seven months of 2021, those bookings still remain well below pre-pandemic highs, indicating that there’s still room for improvement and potential upside for JRNY’s airline components.
Fortunately, the fundamental case for the industry is improving, and JRNY augments airline risk with multi-industry exposure, making airline investing less trying for skittish investors.
“On September 14, Boeing (BA) released its annual Commercial Market Outlook, which has largely been considered the industry standard for insights into air travel,” adds Alerian’s Islam. “Boeing’s forecast states that domestic air travel has been leading the near-term recovery, with shorter-haul routes expected to follow within the next year. By 2023 to 2024, Boeing expects long-haul global travel to return to pre-pandemic levels.”
JRNY charges 0.65% per year, or $65 on a $10,000 stake.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.