JETS ETF joins the mile-high club, topping $1 billion in assets, even as air travel sinks 90%


Are a group of retail investors about to get grounded?

Over the past two months, investors have plowed so much money into an exchange-traded fund with an out-of-favor investing thesis that it’s recently become one of only a handful of ETFs to reach $1 billion in assets under management.

The success for the US Global Jets ETF
JETS,
+11.58%
,
a fund that tracks commercial airline stocks, in the midst of global lockdowns that left air traffic still down by nearly 90%, raises questions about whether it could be a repeat of what happened in April when individual investors lost big on a fund that bets on the oil price.

“Some portion of this might be millennials using Robinhood to speculate, but if you look beyond 2020, you can be optimistic that the industry will recover,” said Dan Weiskopf, portfolio manager for Toroso Investments. “Using an ETF as a way to reflect that thesis offers a ton of upside.”

In fact, it’s very hard to know for sure who’s buying any ETF. As MarketWatch has previously reported, big institutional investors often buy shares of ETFs in order to sell them short — that is, to make a bet that prices will decline.

There are reasons to think that’s not the case here, Weiskopf said in an interview. Bloomberg data show that short interest on JETS is 1.7 million shares, a tiny sliver compared with the 63.2 million shares outstanding.

And a tracker of investing trends on Robinhood shows that nearly 30,000 investors on that platform have a JETS holding.

Robinhood accounts with JETS holdings, compared with its share price.


Robintrack

The recent interest flies in the face of the decision made by billionaire investor Warren Buffett to exit the airline trade altogether. But Weiskopf believes that’s not a fair comparison. While Buffett famously made some very lucrative bets on nearly distressed assets in the thick of a crisis, he still is a value investor with a particular risk threshold that supports a global conglomerate, not an individual who may be looking to speculate.

While JETS’s sponsor says that it “provides investors access to the global airline industry, including airline operators and manufacturers from all over the world,” it has a fairly concentrated portfolio. The top five holdings account for half the portfolio, with Southwest Airlines Co.
LUV,
+5.08%

making up 12.2%, American Airlines Group Inc.
AAL,
+41.09%

at 10.7%, and Delta Air Lines Inc.
DAL,
+13.73%

accounting for 9.6%.

Since the market trough on March 23, JETS has climbed 36.9%, just trailing the 38.2% gain for the S&P 500 index
SPX,
-0.33%
.

For the right investor, buying into JETS could be a great bet, Weiskopf said. “This industry is needed.” And while there’s good reason to believe the U.S. government wouldn’t let the airlines fail, things may not get that dire.

“I also think people want to be optimistic about something and why not this beaten-down group?” Weiskopf said.

Read:The ‘ANTs’ came marching: how have active, non-transparent ETFs performed so far?



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If airlines keep the middle seat empty due to fears of coronavirus transmission, will air travel become more expensive?


Airline tickets are cheap right now. But don’t expect that to last forever.

How cheap are flights? You can book roundtrip airfare in August between New York and Los Angeles for $62, according to a search on travel website Kayak
BKNG,
+1.91%
.
For less than $200, you can get round-trip airfare between Miami and dozens of destinations across Latin America and the Caribbean.

Airlines have slashed the price of tickets as demand plummeted in the face of the global coronavirus pandemic. They’ve flown practically empty planes, and pilots and flight attendants have faced the risk of furloughs and layoffs as airlines’ business has tanked. Meanwhile, travelers are sitting on millions of dollars in vouchers from carriers such as Delta
DAL,
+3.80%
,
American
AAL,
+5.81%
,
JetBlue
JBLU,
+1.29%

and United
UAL,
+5.06%
,
which they received for trips cancelled due to health concerns.

Some have even predicted that one or more airlines could go bankrupt as a result of the downturn. Warren Buffett’s Berkshire Hathaway
BRK.A,
-1.09%

even sold off its stakes in airlines because of the pandemic.

The downturn will likely keep flight prices down for some time to come.

“Early on, many analysts expected a V-shaped recovery in air travel,” said Scott Keyes, founder and chief flight expert at travel website Scott’s Cheap Flights. “That’s clearly not borne out, and instead we’re looking at a stretched out Nike
NKE,
+0.97%

swoosh recovery.”

Also see:Walt Disney World cancels dining reservations and stops taking new hotel bookings ahead of planned July reopening

“Slashing fares is the simplest and most effective tool airlines have to get people back on planes,” Keyes added.

Another factor keeping prices low, besides airlines attempting to boost demand, are fuel costs, Keyes said. Oil prices fell precipitously as stay-at-home orders went into effect across the globe. That’s helped keep costs down for the industry, which has enabled airlines to pass savings onto consumers.


‘Slashing fares is the simplest and most effective tool airlines have to get people back on planes.’


— Scott Keyes, founder and chief flight expert at travel website Scott’s Cheap Flights

But prices won’t stay low forever, and travelers shouldn’t bank on deals sticking around, experts said.

“I would not take too much stock in the prices you see for later this year or 2021,” said Brian Sumers, senior aviation business editor at travel industry news outlet Skift. “This is a fast-moving crisis, and the models airlines use to predict future pricing trends cannot keep up.”

Airlines are hesitant to drop prices too much now for future dates in case travel demand recovers, because doing so would leave them stuck with cheap fares. If demand doesn’t recover, airlines will probably cancel many flights, Sumers said.

Indeed, many airlines have cut less popular routes during the pandemic to reduce their costs. And in some cases, that actually has raised ticket prices. Airfare for trips between Atlanta and Denver is 25% more expensive than in 2019 because JetBlue and Spirit
SAVE,
+7.79%

suspended service on that route until September, said Hayley Berg, an economist at travel company Hopper.

Read more:Half of all Americans are canceling their summer vacations — what to expect in refunds from cruise lines, hotels and airlines

“Spirit and JetBlue offer low base fares compared to other major carriers on the route, and a suspension of service and these fares drives up the average price available on the route,” Berg said.

“As carriers work to restructure their schedules and partner with the [Department of Transportation] to determine which routes can be changed, it’s likely that there will be some routes where average prices will rise compared to previous years given the fewer options available to customers,” she added.


‘Airlines blocked middle seats to try to get people comfortable to fly again. But it’s not sustainable, long-term.’


— Brian Sumers senior aviation business editor at travel industry news outlet Skift

If demand does rebound in earnest though, you could see airlines responding by changing coronavirus-related policies. In other words: Don’t expect flights to remain so empty.

“Airlines blocked middle seats to try to get people comfortable to fly again,” Sumers said. “But it’s not sustainable, long-term. Airlines will get back to selling every seat on the airplane soon enough.”

United recently announced a set of disinfecting protocols, including a partnership with Clorox
CLX,
-0.98%
,
aimed at making passengers feel more comfortable about the safety of boarding an airplane during a pandemic.

Carriers also have grounded many planes and put them in storage because of the slowdown in air travel. If flight demand picks up enough, those aircraft could be put back in service. That added capacity would help to mitigate rising prices.



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U.S. grants tentative OK for 15 air carriers to suspend service to 75 airports By Reuters


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© Reuters. FILE PHOTO: Delta Air Lines passenger planes parked in Birmingham

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By David Shepardson

WASHINGTON (Reuters) – The U.S. Transportation Department said late on Friday it had granted tentative approval to 15 airlines to temporarily halt service to 75 U.S. airports because of the coronavirus pandemic.

Airlines must maintain minimum service levels in order to receive government assistance but many have petitioned to stop service to airports with low passenger demand.

Both United Airlines (O:) and Delta Air Lines (N:) won tentative approval to halt flights to 11 airports, while JetBlue Airways Corp (O:), Alaska Airlines (N:) and Frontier Airlines were approved to stop flights to five airports each. The department said all airports would continue to be served by at least one air carrier.

The Transportation Department said objections to the order can be filed until May 28.

U.S. air carriers are collectively burning through more than $10 billion in cash a month as travel demand remains a fraction of prior levels, even though it has rebounded slightly in recent weeks. They have parked more than half of their planes and cut thousands of flights.

The department has previously granted airlines waivers to cancel some additional flights and denied others. On May 12, the department said it would allow carriers to halt flights to up to 5% of required destinations.

Under the tentative order, Delta can halt service to Aspen, Colorado; Bangor, Maine; Flint, Michigan; Santa Barbara, California; and Lincoln, Nebraska, among other cities, while United can halt service to airports including Chattanooga, Tennessee; Hilton Head and Myrtle Beach, South Carolina; Key West, Florida; and Lansing and Kalamazoo, Michigan.

JetBlue can halt flights to Albuquerque, New Mexico;

Palm Springs and Sacramento, California; Sarasota, Florida; and Worcester, Massachusetts.

Alaska can suspend flights to Charleston, South Carolina;

Columbus, Ohio; El Paso and San Antonio, Texas; and New Orleans.

Only half of eligible carriers have applied to cut more flights.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Norwegian Air gets $271 million state-backed loan after debt restructuring By Reuters


© Reuters. FILE PHOTO: Passengers board a Norwegian Air plane in Kirkenes

OSLO (Reuters) – Budget airline Norwegian Air (OL:) has secured a long-sought credit guarantee from Norway’s government after completing a debt restructuring, it said on Wednesday, allowing it to survive in a slimmed-down version.

Following the grounding of almost all its fleet due to the coronavirus pandemic, the company had said it would run out of cash in mid-May unless it was able to qualify for the 2.7 billion Norwegian crowns ($271 million) state package.

The government in a separate statement confirmed the airline would get the guarantee. Norwegian had already secured a $30 million payout at an earlier stage, taking the overall loan to $301 million.

Bondholders, lessors and shareholders agreed in recent weeks to a 12.7 billion crowns debt conversion and share sale that boosted Norwegian’s equity ratio to 17% from 4.8% at end-2019, exceeding the minimum government requirement of 8%.

($1 = 9.9751 Norwegian crowns)

 

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Canada’s Trudeau to look at possible further aid for airlines, after Air Canada layoffs By Reuters


© Reuters. Air Canada signage is pictured at Vancouver’s international airport in Richmond,

By Rod Nickel

WINNIPEG, Manitoba (Reuters) – Canadian Prime Minister Justin Trudeau said on Saturday he would look at possible ways to help airlines further, but laid out no new measures after the country’s biggest airline announced mass layoffs due to the coronavirus pandemic.

Air Canada said on Friday it would cut its workforce by up to 60% as the airline tries to save cash amid the COVID-19 pandemic and adjust to a lower level of traffic.

“This pandemic has hit extremely hard on travel industries and on the airlines particularly,” Trudeau said in a briefing in Ottawa. “That’s why we’re going to keep working with airlines, including Air Canada, to see how we can help even more.”

Canada has already put in place a wage subsidy to try to keep more Canadian workers on payrolls, and recently announced loans for large employers.

Trudeau sidestepped questions about whether his government may take an equity stake in Air Canada to help it survive, and whether its layoffs suggest the wage subsidy is not working.

Canada’s coronavirus death toll rose 1.7% to 5,595 from the previous day, reflecting a declining mortality rate. Total cases rose to nearly 75,000.

Trudeau also said his government had approved the first Canadian clinical trials of a potential COVID-19 vaccine, at Nova Scotia’s Dalhousie University.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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