An airline sector-specific ETF can capitalize on strong tailwinds in the global airline industry and potentially enhance a portfolio through the growth opportunity in the transportation segment.
On the recent webcast, An Airline Sector Strategy Including Boeing, American, United, Frank Holmes, CEO and Chief Investment Officer of U.S. Global Investors, outlined a plethora of factors that could help support the airline industry outlook ahead. For starters, there were 2 million people flying in the U.S. every day in 2017 and the numbers have been increasing as the economy grows. Looking at the global picture, an expanding middle class is expected to contribute to increased airline traveling, with an expected 4.2 billion global middle class in 2022 and 5.2 billion in 2028.
The industry has experienced increased return on invested capital. For instance, the U.S. Global Jets Index shows a return on invested capital of 14.8% and the New York Stock Exchange ARCA Airline Index shows a ROIC of 11%, compared to the S&P 500’s 6% ROIC.
Free cash flow among domestic airlines are also experiencing their greatest increase in years.
Additionally, yield growth among airline companies is on the rise, with the New York Stock Exchange ARCA Airline Index showing a 1-year dividend yield growth of 25.88%, compared to the Dow Jones Transportation Index’s 1-year dividend yield growth of -1.69%.
The improving global economic conditions have also contributed to greater profits. Analysts project a record $38.4 billion in net profits for the global airline industry for 2018. Looking further out, the aviation industry is expected ton contribute $1 trillion to world GDP by 2026.