What is an 'Airline Industry ETF'

An airline industry ETF is a sector exchange-traded fund (ETF) that invests in stocks of airline companies, so as to obtain investment results that correspond to those of an underlying airline index. Because of the very limited number of airlines in most nations, an airline ETF is unlikely to be restricted only to domestic carriers but would very likely include foreign carriers as well.

BREAKING DOWN 'Airline Industry ETF'

Airline industry ETFs are a way to invest broadly within the airline industry, but they aren’t all created equal. Investors who are considering investing in airline companies, or any sector, should become familiar with the metrics that can help them determine the profitability and efficiency of companies within that sector. For airline companies, two key metrics are available seat miles (ASM) and revenue per available seat mile (RASM).

ASM is a measurement of a flight's ability to produce revenue; the measurement is based upon the numbers of seat miles that can be sold on a particular aircraft. ASM is a crucial metric for investors as it allows them to identify airlines that produce the most revenue per seat. When some seats remain empty on a flight, the airline's ASM is below capacity. Over time, a pattern of empty seats on a particular airline proves very costly to the company.

RASM is a metric analysts and investors use to assess the efficiency of an airline. The RASM is calculated by dividing the operating income by the ASM. Larger RASM tends to indicate higher profitability for the airline. Notably, the revenue is not only limited to ticket sales; it includes other influences such as profitability and efficiency. 

Pros and Cons of an Airline Industry ETF

The airline industry is susceptible to a number of factors that can affect demand for air travel; these include economic downturn, terrorism and inclement weather. An airline ETF may underperform at such times, as well when fuel prices are surging, since the cost of aviation fuel has a major impact on airline profitability.

There are compelling reasons why an airline industry ETF could make sense for investors looking to capitalize on growth trends in transportation. The International Air Transport Association (IATA) expects around 7.8 billion passengers to travel by air in 2036, nearly twice the amount of people who traveled by air in 2017. 

RELATED TERMS
  1. Cost Per Available Seat Mile - ...

    Cost per available seat mile (CASM) is a common unit of measurement ...
  2. Richard H. Anderson

    Richard H. Anderson was CEO of Delta Airlines during merger with ...
  3. Discriminating Monopoly

    A discriminating monopoly is a market-dominating company that ...
  4. ETF of ETFs

    An ETF of ETFs is an exchange-traded fund (ETF) that tracks other ...
  5. Stock Exchange-Traded Fund (ETF)

    A stock exchange-traded fund (ETF) is a security that tracks ...
  6. International ETF

    An international exchange traded fund (ETF) is any ETF that invests ...
Related Articles
  1. Investing

    3 Best Airline ETFs for 2018

    These ETFs have high potential for gains in 2018 with increased interest in the airlines category.
  2. Insights

    TripAdvisor Ranks the World's Best Airlines

    Travel review portal TripAdvisor has provided a ranking for leading airlines at global and regional levels.
  3. Investing

    American Airlines Trades Ex-Dividend Wednesday (AAL)

    The company is adjusting to an environment where there are more seats available across the industry than demand, which forces airliners to cut prices.
  4. Investing

    JPMorgan Downgrades 3 Airline Stocks, LUVs Others

    JPM expects rising fuel costs and price wars to create more turbulence across the airline sector, throwing up a number of buy and sell opportunities.
  5. Investing

    5 Reasons Airline ETFs Are Doing Well Despite Oil Bounce (JETS, AAL)

    Learn why airline stocks and exchange-traded funds are increasing their profits consistently as oil prices are also on the rise.
  6. Investing

    How Weak Oil Prices Affect Airline Profits

    Oil prices are a bit like the weather. This is an opportunity for airlines to invest the higher revenue back into the business.
  7. Investing

    Is That Airline Ready For Lift-Off?

    Break through the clouds to see if these stocks will rocket higher, or crash and burn.
  8. Insights

    Falling Prices, Revenue Hit Airlines

    2016 has been a tough year for U.S. airlines with overcapacity and falling prices.
  9. Personal Finance

    Top 4 Best Value Airlines

    Plane tickets can be pricey, they don't have to be! With this handy guide you can save your hard-earned money for when you're on the ground.
RELATED FAQS
  1. The Average Debt/Equity Ratio of Airline Companies

    Find out more about the average long-term debt to equity ratio of companies in the airlines sector and the importance of ... Read Answer >>
  2. Do ETFs generate capital gains for shareholders?

    Learn how exchange-traded funds (ETFs) can generate taxable capital gains for shareholders due to occasional and substantial ... Read Answer >>
Trading Center