With the launch of the U.S. Global Jets ETF (NYSE:JETS) Friday, investors have a new way to play the soaring airline industry.
Believe it or not, JETS is currently the only exchange-traded fund with a focus on the airline industry.
Should you take a flier and buy in?
Whether you buy JETS or not depends on your risk tolerance and market outlook, of course, but there’s no denying that the JETS ETF provides broad, global exposure to the airline industry, which has seen incredible growth in recent years as fuel prices tumbled and bag fees remained increased.
If you believe in the airline industry and want broad exposure to airline stocks, this is the ETF for you. There literally isn’t another one like JETS.
What JETS Will Look Like
The ETF will be designed to track the U.S. Global Jets Index and have an 80% allocation to U.S. names and a 20% allocation to overseas names.
In the press release announcing the JETS ETF, U.S. Global Investors outlined the top stocks in each division. In its domestic allocations, the ETF will prominently feature the four major U.S. airline stocks, each of which have handily beat the S&P 500‘s trailing-five-year returns of 18%:
- American Airlines Group Inc (NASDAQ:AAL) five-year return: 89%
- Delta Air Lines, Inc. (NYSE:DAL) five-year return: 274%
- United Continental Holdings Inc (NYSE:UAL) five-year return: 181%
- Southwest Airlines Co (NYSE:LUV) five-year return: 220%
International names like Japan Airlines Co., Ltd. (up 116% in the last five years), Air Canada (up 431%) and easyJet plc (up 249%) will also be featured.
CEO and Chief Investment Officer of U.S. Global Investor Frank Holmes points out that dramatic restructuring in the industry has helped airline stocks enter a new era of prosperity, which should bode well for the JETS ETF moving forward:
“It’s easy to forget that between 2005 and 2008, about 70 percent of U.S. carriers were operating under Chapter 11 bankruptcy protection, but we’ve seen a sea (of) change since then and the benefits of restructuring started showing up in 2013.”
Importantly, airlines are getting better at extracting more revenue per passenger. Non-ticket revenues from premium features and services like Wi-fi, extra leg room and baggage fees soared from $2.45 billion in 2007 to $31.5 billion in 2013.
Even though airline stocks have gotten a huge boost from falling fuel costs over the last year and the change in fee structures, they’re also beneficiaries of a rapidly consolidating industry that Andrew Ross Sorkin of the New York Times has called “an uncompetitive oiligopoly” of airlines that “deliberately don’t compete on some routes.”
That’s a travesty for the consumer, but let’s admit it: from an investor’s standpoint, it’s a dream.
Investors should also know that while the JETS ETF sounds promising, there have been airline ETFs in the past, and they haven’t gone over well. Guggenheim and Direxion both launched airline ETFs in 2009 and 2010, respectively, but both were liquidated in short order as neither attracted enough funds to be profitable.
At a 0.6% expense ratio, the JETS ETF is a reasonably priced, passively managed fund that hopes to avoid the fate of its recent predecessors. If the current airline industry dynamics continue, all’s looking clear for a smooth takeoff.
As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
