The main exchange-traded fund for airlines, U.S. Global Jets ETF (JETS), has dropped to a 16-month low, as the Russia-Ukraine war has put a damper on the industry.
The biggest JETS holdings in descending order are Delta Airlines (DAL), United Airlines (UAL), Southwest Airlines (LUV) and American Airlines (AAL). JETS has slumped 16% since Feb. 14.
In the past month, Delta has fallen 14%, United 15%, Southwest 7% and American 13%.
The war in Ukraine hurts on several levels. First, it has sent oil prices soaring, which means higher prices for jet fuel, too. And fuel makes up about 30% of airlines’ costs. Second, it means a reduction or cessation in flights to Russia and surrounding areas.
Third, the higher oil prices cut into consumers’ incomes, making travel less affordable. And in any case the war might lessen their confidence for traveling overseas.
As for analysts’ views of airline stocks before the war, Morningstar’s Burkett Huey was bullish on Delta.
“We think Delta is the highest-quality legacy carrier because it has been able to attract high-yielding business travelers through its product segmentation and credit card partnerships, primarily with American Express,” (AXP) he wrote in a January commentary.
“Delta’s five-cabin segmentation strategy allows high-spending travelers to purchase premium options when they are able to.”
Huey put fair value for Delta at $57, compared to a recent quote of $34.33.
Huey liked Southwest, too, putting fair value at $65 in January, compared to a recent quote of $40.48. “We believe Southwest’s customer-friendly tactics benefit the firm by providing the closest thing to a brand asset in the airline industry,” Huey wrote in a commentary.
“We point to the fact that over 85% of Southwest's sales are through its own distribution channel, where prices among carriers are difficult to compare, while other carriers have a higher reliance on third-party distributors to earn customers.”
