Airlines have always been known as a volatile industry/sector to invest in. Historically, the airline industry has not been an industry for those with a weak stomach. Low earnings, low margins, bankruptcies are the norm. Despite this, it is also one of the most competitive industries around as every type of airline exists. For example, there exist international airlines, domestic airlines, and regional airlines. What  makes things even more complicated when analyzing a particular airline is the various variables that affect its bottom line. Sometimes these variables are uncontrollable and as an investor it could become very frustrating as each hour/day that flights are not leaving the ground is revenue and earnings not earned. This happened recently to multiple domestic and international airlines as a volcano was throwing so much ash into the air that it literally locked down major European airports as it was deemed unsafe to fly due to poor visibility.

So with so much uncertainty in the airlines why would anyone even think about investing in such an uncertain industry?

First, wherever there is risk, there is the potential for big returns. Almost on a daily basis, airline stocks are among the leaders for the biggest gainers during that particular day. On the other hand, there are also among the biggest losers. Why? Simple, a lot of the airline companies have a very leveraged balance sheet. As it is, airplanes cost a lot of money. If the airline plans to expand to meet demand, they have really no option but to purchase an airplane. At the same time, while revenues might be increasing the margins airline companies earn are minuscule. But the real problem arises when the economy and consumer confidence declines.  This is due to the fact that many airlines are constantly on the ropes due to their leveraged balance sheets and low margins. thus you will constantly see airline companies going into bankruptcy and also coming out of bankruptcy. Thus, that provides a partial reason why you will often see airline companies on the biggest gainers/lowers list.

List of Airline ETF‘s

Claymore/NYSE Arca Airline (ETF)

The Claymore/NYSE Arca Airline ETF currently has a .65%  expense ratio. It is a relatively small ETF but it is a pioneer in its class. It currently has 24 holdings with the top 5 holdings/stocks making up 50% of the ETF. Below are the top holdings and the percentage weight of the stocks.

1. UAL Corporation (UAL) 15.33%
2. Southwest Airlines, Co. (LUV) 13.82%
3. Delta Air Lines, Inc. (DAL)  12.46%
4. Deutsche Lufthansa AG
5. All Nippon Airways

Disclosure: None

No related posts.