In The News

High Oil Prices Won’t Ground Airlines

from ETF Trends and Barron's January 21, 2020

Oil prices went through a wild ride at the very start of 2020 due to escalating tensions between the U.S. and Iran. Jet fuel can make up 25 percent of an airline’s total expenses, which does leave the industry somewhat exposed to oil price volatility. However, investors shouldn’t be deterred from investing in airlines.

Al Root, writing for Barron’s, reminds readers that “the U.S. airline industry has earned record profits when oil was about $100 a barrel and gone bankrupt when oil was $40 barrel.” Root emphasizes that it is the supply and demand balance between the number of airplane seats and customers that is more of a determining factor in profitability, rather than the price of oil.

Tom Lydon, publisher of ETF Trends, writes that the U.S. Global Jets ETF (JETS) “can potentially stand firm in the face of increased near-term oil market volatility,” largely due to strong passenger traffic during the past holiday travel season.

U.S. Global Investors has authored and is responsible for the summary on this page. All opinions expressed and data provided are subject to change without notice. Opinions are not guaranteed and should not be considered investment advice. ETF Trends publisher Tom Lydon is on the board of U.S. Global Investors. Ancillary fees/revenue, in the airline industry, is revenue from non-ticket sources, such a baggage fees and on-board food and services, and has become an important financial component for low-cost carriers.