The U.S. Global Jets ETF (NYSEARCA: JETS) has shown signs of recovery, gaining 13.9% over the past year. While still dealing with the financial after-effects of the pandemic, the global airline industry is experiencing renewed demand, positively influencing the ETF’s performance. With $797.6 million in assets and a concentration in traditional carriers, it provides investors an avenue to invest in the aviation sector, although they incur a higher expense ratio of 0.60% compared to broader market funds. This upward momentum reflects an optimistic outlook in the face of ongoing market challenges.
Previously, JETS’ performance was significantly hampered by the pandemic’s effect on airlines globally. Unlike its current upward trajectory, there was a marked underperformance compared to the S&P 500, highlighting extensive structural impacts on the airline industry. The ETF bridges investments across various sectors, including aerospace manufacturers and travel platforms, but the recent rise suggests improved market sentiment and potential economic recovery in aviation.
What Role Do Fuel Costs Play?
Jet fuel constitutes a significant portion of airline operating costs. The International Air Transport Association projects a decrease in fuel prices from $90 to $88 per barrel by 2026. This reduction, while minor, could lead to notable margin expansion given fuel expenses can account for up to 30% of total operational costs for airlines. A lower fuel price not only eases operational expenses but also affects route planning economics.
Projected changes in fuel costs are critical because they directly influence profit margins, which IATA foresees at 3.9% globally by 2026. Fuel price variations have the potential to affect airlines’ economic decisions and route planning, essential for achieving a profitable outcome.
How Does the Concentration Affect Portfolio Volatility?
With significant investments in United Airlines, Southwest Airlines, Delta Air Lines, and American Airlines, which together make up 43.3% of the portfolio, the ETF is prone to volatility from these companies’ financial results. For instance, any earnings disappointment from these airlines could impact the entire fund given its concentrated setup.
American Airlines, in particular, is under scrutiny. Expected to report earnings with a mere 1.1% profit margin compared to Delta’s 7.4%, it could impact ETF performance. The heavy weighting of major airlines within the JETS portfolio increases the risk tied to individual stock performance.
Retail investors have mixed opinions about the airline industry’s recovery. Many express doubts about the return of business travel to pre-pandemic levels. One investor stated:
“Business travel still hasn’t recovered to pre-pandemic levels and I’m not convinced it ever will with remote work becoming permanent at so many companies.”
This sentiment underscores apprehensions about whether corporate travel demand will rebound, influencing airlines’ revenue.
On the other hand, strong leisure travel recovery is noted, despite its margin pressures. Another investor observed:
“Leisure travel is booming but margins are compressed because everyone’s competing on price for vacation travelers who are much more price-sensitive than business flyers.”
This dichotomy highlights the effects of consumer behavior on airline profitability.
Careful monitoring of fuel prices and company earnings, particularly American Airlines, remains essential for investors tracking JETS. The fund’s current structure shows immediate macro and microeconomic factors such as jet fuel costs and company-specific performances influencing overall market movements. Understanding these dynamics provides insight into potential shifts in airline industry profitability and investment opportunities.
