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New Airline ETF: Clear Skies or Turbulence Ahead?

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December 09, 2008 – Comments (0) | RELATED TICKERS: IYT , SEA , LUV

New Airline ETF: Clear Skies or Turbulence Ahead?

[web link to 58 Cos. & index stats]



Tom Lydon of ETF Trends reported today that Claymore is expected to launch the first Airline ETF in early 2009, which will contain 26 passenger airlines with a mix of 70% domestic and 30% global companies. It remains to be seen if the Airline ETF will experience a similar fate as recently launched, narrow-focused transport funds, including the Claymore/Delta Global Shipping (SEA) and PowerShares Global Progressive Transport (PTRP) – which were launched this past fall and have attracted $9.6M and $1.8M in net assets, respectively, versus nearly $500M in net assets for the iShares Dow Transports (IYT).

The transport space seems to be garnering more attention these days from ETF providers, which is increasingly turning to more narrowly focused themes just as the soon to be defunct HealthShares sliced and diced the healthcare sector into as many as 19 ultra-niche ETFs. So far, IYT is clearly the gold standard despite the fact that is not globally diversified and only time will tell if long transport ETF ideas for shipping, airlines, trucking, railroads, and a global transport composite or even a short ETF idea for auto makers or the airlines can attract enough interest to be viable for the long term.

The accompanying table [click to enlarge] includes statistics for the 58 companies in the ETF Innovators [ETFI] Global Air Transport Index, which contains passenger airlines such as Southwest (LUV) + China Southern (ZNH), helicopter transport companies such as Air Methods (AIRM) + PHI Inc. (PHII), and air freight companies such as Atlas Air (AAWW). In addition, more than half of the 58 companies are only listed on stock exchanges outside of the U.S.

The 2009 outlook for the airline industry is improving thanks to the pullback in jet fuel prices and decreased capacity – as weak carriers go out of business, more planes stay on the ground, and mergers such as Northwest-Delta (DAL) reduce the number of companies. However, the global economic slowdown and the reduced demand for travel will surely have a negative impact on an industry which has struggled through many years of losses, bankruptcies, and reorganizations among many of its companies.

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