Strengths
- Airline traffic, as measured by the Transportation Security Administration (TSA) checkpoint data, continued to improve during 2021, and continues to improve with the upcoming 2022 spring and summer travel seasons. The TSA data recaps the 2021 Thanksgiving holiday air travel numbers, which doubled when compared to last year and came in slightly below 2019 levels overall. For seven consecutive days, daily airport passenger volumes exceeded 2 million people, according to the TSA. This was a streak that had not occurred since before the pandemic started two years ago.
- European airline bookings strongly rebounded in the final week of March 2022 after declining for two weeks following the invasion of Ukraine. Total weekly bookings reached their highest level since the beginning of the pandemic, while both intra-Europe and international average fares recovered to 2019 levels.
- Chase card spending on air travel continued to improve in 2021 and is approaching levels not witnessed since 2019. A similar positive momentum was seen with combined Bank of America debit and credit card data, with daily airline spending above 2019 levels.
Weaknesses
- Air France-KLM announced a surcharge for long-haul ticket prices given soaring fuel costs in the first quarter of 2022, as per media reports. The charge was effective from March 25. For KLM, the charge varies between destination and cabin class, and would add EUR40 to an economy flight between Amsterdam and New York and EUR100 for business class.
- Jet fuel prices climbed approximately 86% year-to-date through the end of March, according to Bloomberg data. Historically, airlines have passed on around half of fuel price increases through ticket fares over time. This year will be more challenging, though, as demand is still recovering and there is potential for excess capacity in Europe.
- March 2022 global airline scheduled capacity (which reflects the planned total seat capacity that airlines expect to offer) was reduced another 1% during the last week in March, bringing capacity down to 69% recovered to 2019 levels. Asia-Pacific cut March capacity another 2% putting the region at 54% recovered, while Europe pulled in 1% putting the region at 70% recovered.
Opportunities
- Air Canada’s projected corporate travel in 2023 could recover to 80% of 2019 levels, according to the company’s Investor Day presentation on March 30. Leisure demand is expected to surpass 2019 levels by that time.
- Southwest Airlines debuted its widely broadcasted new fare category dubbed “Wanna Get Away Plus” that will go on sale in June 2022. The new fare category will allow same-day changes without paying a fare difference and the ability to transfer unused credits to another traveler.
- There were encouraging signs of easing travel restrictions in the first quarter, with notable developments in Asia. Singapore announced its border reopening to vaccinated travelers as of April 1, and Hong Kong announced the lift of flight bans on nine countries the same day. However, China and Japan remain under restrictions.
Threats
- European airlines could find it more challenging to pass on higher fuel costs this year, given the inflation impact on consumers and plenty of supply. Around one-third of the increase in fuel costs is passed on in higher fares to travelers.
- Travel budgets in corporations may not recover to 2019 levels. The expectation is for an average of 29% of 2022 travel budgets to be allocated, instead, to virtual meetings, according to financial media reports. “Virus concerns” were the primary reason cited for using virtual meetings instead. Chairman and CEO of American Airlines, Doug Parker, stated that he remains bullish on business travel and believes video communication platforms such as Zoom can and will co-exist with corporate travel, rather than compete. Delta Air Lines has indicated that corporate travel could resume as corporate offices and borders reopen.
- Delta Air Lines has been more proactive in cutting capacity than its peers as it lowered its March domestic flight schedules by around 7%. American and United cut their March domestic capacity levels as well. For the first quarter, the network carriers and Southwest Airlines showed domestic flight schedules at 96% of 2019 levels.
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All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.
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Disclosures: Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the funds. Brokerage commissions will reduce returns. Because the funds concentrate their investments in specific industries, the funds may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries. The funds are non-diversified, meaning they may concentrate more of their assets in a smaller number of issuers than diversified funds. The funds invest in foreign securities which involve greater volatility and political, economic and currency risks and differences in accounting methods. These risks are greater for investments in emerging markets. The funds may invest in the securities of smaller-capitalization companies, which may be more volatile than funds that invest in larger, more established companies. The performance of the funds may diverge from that of the index. Because the funds may employ a representative sampling strategy and may also invest in securities that are not included in the index, the funds may experience tracking error to a greater extent than funds that seek to replicate an index. The funds are not actively managed and may be affected by a general decline in market segments related to the index. Airline Companies may be adversely affected by a downturn in economic conditions that can result in decreased demand for air travel and may also be significantly affected by changes in fuel prices, labor relations and insurance costs.
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Distributed by Quasar Distributors, LLC. U.S. Global Investors is the investment adviser to JETS.