ETFs in Focus on Airlines’ Slowdown Warnings

The airline, and travel and tourism industries, which were on the mend on reopening economies and improving travel demand following the rollout of vaccines, seems to have hit the brakes on the fast-spreading Delta variant of the coronavirus and slower vaccine rates. This is especially true as several U.S. airlines warned of a slowdown in ticket sales and cut the revenue forecast for the third quarter.

Notably, the nation is reporting an average of 151,500 new cases per day, according to data compiled by Johns Hopkins University, hovering around levels seen in late January. A spike in COVID-19 cases and further delays in companies’ plan to return to offices have cast doubts on business travel demand, a lucrative segment of air travel that usually picks up during fall (read: Growth Concerns to Drive Demand for Low-Volatility ETFs).

American Airlines AAL now expects its third-quarter 2021 total revenues to be down 24-28% (from the third quarter of 2019) versus the company’s previous guidance of down 20%. Delta Air Lines DAL expects third-quarter adjusted revenues to be at the lower end of its forecast while United Airlines UAL expects revenues to fall 33% in the third quarter from the third quarter of 2019. Southwest Airlines LUV warns of continued soft bookings and elevated cancellations due to COVID and Hurricane Ida for the ongoing quarter.

The slew of revenue warnings comes with signs of recovery, thereby leading to spike in airline stocks. This is because bookings are expected to pick up as soon as the case counts go down. JetBlue anticipates leisure demand for peak holiday travel to ” hold up relatively well” and Delta Air Lines said booking trends have stabilized in the last 10 days and expects recovery to resume. Southwest also expects booking patterns for the winter holidays to be normal. As such, major air carriers climbed by as much as 5% on the Sep 9 trading session.

Additionally, airlines get boost from President Joe Biden’s latest plan to increase the COVID-19 vaccination rates in the United States that would result in a pick up in travel demand. The President announced a new requirement for federal employees to get a COVID-19 vaccine, with no option for regular testing. Some 100 million people or two-thirds of the American workforce will be covered by the new executive orders and rules on vaccination. Meanwhile, the U.S. lawmaker argeed mandatory COVID-19 vaccines or recent negative tests for all domestic air and train travelers.

Moreover, the FDA’s recent full approval to Pfizer PFE and BioNTech’s COVID-19 vaccine, which had been under emergency use authorization since December, has bolstered investors’ optimism about the economy. This is because it will help quash the ongoing surge in the COVID-19 Delta variant and lead to a continued reopening of the economy, thereby boosting travel demand (read: ETFs to Rise on Full FDA Approval for Pfizer COVID-19 Vaccine).

This has put ETFs from the travel industry in focus. We have highlighted them below:

U.S. Global Jets ETF JETS

This fund provides exposure to the global airline industry, including airline operators and manufacturers from all over the world, by tracking the U.S. Global Jets Index. In total, the product holds 51 securities that are heavily concentrated on the top four firms with more than 9% share each. Other firms hold no more than 3% share. The fund has gathered $3.4 billion in its asset base and sees a heavy trading volume of 4.9 million shares a day. It charges investors 60 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a High risk outlook.

SonicShares Airlines, Hotels, Cruise Lines ETF TRYP

This fund provides exposure to a global portfolio of companies that are focused on what many investors consider to be the “core” of business and leisure travel: the airline, hotel and cruise line industries. It tracks the Solactive Airlines, Hotels, Cruise Lines Index, holding 60 stocks in its basket with well spread-out exposure. TRYP newly launched in the space in May and has accumulated $4.9 million in its asset base so far. It trades in an average daily volume of 24,000 shares and charges 75 bps in annual fees.

Defiance Hotel, Airline, and Cruise ETF CRUZ

This product tracks the BlueStar Global Hotels, Airlines, and Cruises Index, which measures the performance of globally listed companies primarily engaged in the travel and tourism industries. Holding 49 stocks in its basket, American firms make up for 53.3% of the portfolio while Panama, Liberia and the United Kingdom round off the next three with single-digit exposure each. CRUZ, launched in June this year, has gathered around $12.4 million in its asset base and charges 45 bps in annual fees, Volume is lower as it exchanges around 12,000 shares a day on average.

ALPS Global Travel Beneficiaries ETF JRNY

This ETF, which was launched on Sep 9, provides diversified exposure to the global travel industry, which has historically outpaced global GDP growth for nine consecutive years between 2011 and 2019. It follows the S-Network Global Travel Index, which identifies stocks of companies that are materially engaged in the global travel industry. The fund’s portfolio invests in booking and rental agencies, airlines and airport services, hotels, casinos, and cruise lines, along with travel-related companies identified through machine learning algorithms, such as luxury retail, entertainment, leisure, food and beverage, and payment processing vendors.

ETFMG Travel Tech ETF AWAY

This is the first ETF that offers direct access to the technology-focused global travel and tourism industry. It follows the Prime Travel Technology Index, charging investors 75 bps in annual fees. The fund holds 34 stocks in its basket with travel bookings & reservations companies accounting for 51.9% of assets, followed by 17.5% share in travel advice firms. AWAY has accumulated $280.1 million in its asset base and trades in an average daily volume of 183,000 shares (see: all the Industrial ETFs here).

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Pfizer Inc. (PFE): Free Stock Analysis Report

Delta Air Lines, Inc. (DAL): Free Stock Analysis Report

United Airlines Holdings Inc (UAL): Free Stock Analysis Report

Southwest Airlines Co. (LUV): Free Stock Analysis Report

ETFMG Travel Tech ETF (AWAY): ETF Research Reports

American Airlines Group Inc. (AAL): Free Stock Analysis Report

U.S. Global Jets ETF (JETS): ETF Research Reports

SonicShares Airlines, Hotels, Cruise Lines ETF (TRYP): ETF Research Reports

Defiance Hotel, Airline, and Cruise ETF (CRUZ): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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