Airlines ETF & Stocks Ride the Rebound in Travel Demand

Sweta Jaiswal, FRM

The coronavirus outbreak has hammered the U.S. economy, with the airline sector being one of the worst-hit spaces. The virus’ spread resulted in declining air travel with restrictions imposed by the government. Consequently, airlines’ top lines suffered a material impact as passenger revenues form the largest component of their total revenue base. However, it seems like the worst is over for the airline industry as the United States has started to reopen its economy with permission for inter-state travel.

In fact, airlines in many parts of the world are planning to resume flights starting this month as economies are reopening and new safety measures are being undertaken. Going by a Bloomberg article, around 314,000 people on average went through U.S. airport security checkpoints in the week ending May 29, per the Transportation Security Administration. The metric comes at around 13% of the equivalent week a year ago and only slightly above 12% witnessed in the week ending May 22. Notably, more than 1.5 million passengers passed through airport security checkpoints during the Memorial Day weekend. Going on, American Airlines’ AAL  load factor or the average share of seats filled per plane surged to 55% in the week ending May 29 in comparison to 15% in April (per a Bloomberg article).

In fact, trading session on Jun 4 saw a massive rise in airline stocks as major companies like American Airlines surged 41.3%, Delta Air Lines DAL rose 13.7% and United Airlines UAL rallied 16.2%. Also, the U.S. Global Jets ETF JETS rose 11.6% on the day. These major carriers are being observed to be adding hundreds of flights during the post-lockdown reopening of the U.S. economy. American Airlines saw a record surge following its announcement to increase schedule for flights in July by 74% in comparison with that in June.

Current Scenario in Airlines Industry

Globally, governments have started to lift travel restrictions, thereby reviving the domestic travel industry to say the least. The travel bookings are currently being processed for business as well as pleasure trips. Per a Bloomberg article, several corporations are easing travel restrictions in states like Texas and Florida that have relaxed quarantine measures. Moreover, with summer vacations approaching, flights are being booked to Florida’s amusement parks, beaches along the Gulf Coast and mountain destinations in Montana, Utah and Colorado, according to a Bloomberg article.

However, the airlines industry is still looking for opportunities to return to more lucrative travel routes. Moreover, the international schedule can take time to normalize given the continuous spread of coronavirus. Also, some market experts believe that it will be prudent to keep a tab on whether travelers will be returning to pre-pandemic levels in the near term as they might not want to take the chances of re-emergence of the coronavirus outbreak due to travelling. Furthermore, airlines may have to face the brunt of rising oil prices on their already stressed balance sheets.

Against this backdrop, investors can keep a tab at the following airline ETF:

U.S. Global Jets ETF JETS — up 27% since start of June

The fund provides investors access to the global airline industry, including airline operators and manufacturers from all over the world. With AUM of $1.41 billion, the fund holds a basket of 39 stocks. It trades in average volumes of about 2.1 million shares a day. It also has an expense ratio of 60 basis points (read: These ETF Areas Make Great Investment Choices in June).

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Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
 
United Airlines Holdings Inc (UAL) : Free Stock Analysis Report
 
American Airlines Group Inc. (AAL) : Free Stock Analysis Report
 
U.S. Global Jets ETF (JETS): ETF Research Reports
 
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