An Airline ETF: Should You Consider It?

Airlines have taken huge hits over the last several years, but the signs are there that things may be in improving in 2010. In fact, despite a lingering recession and polls that show most Americans will be staying in the country and closer to home than ever on vacations for the remainder of the year, vacation and leisure related industries including airlines have shown big improvements over 2009.

Investing in an airline ETF means that you’re buying shares of an umbrella fund, much like a mutual fund, that represents several different companies in the air industry. Rather than buying stock in a single company, your investment is spread over several and more closely follows the general trend in that index.

Airline ETFs might not sound like a great investment given the problems that have plagued airlines, but some investors are looking at the general upswing in leisure and vacation spending in 2010 and buying shares of the ETF to bet on higher profits in the coming months.

Some airlines are showing huge gains over 2009 from the summer vacation season. Delta’s sales were up over 60% from 2009, for instance. And hot online travel deal-making sites like Priceline and Expedia both showed big improvements from just a year ago. Thanks to a drop in hotel prices that came because of slow business, the hotel sector is actually growing rapidly.

While fewer Americans are traveling by air to Europe and foreign countries, business travelers still travel globally and make up for at least some of the general consumer travel loss. So some believe that no matter what consumers do, business travelers will help the airline industry and the ETF value grow.

But bear in mind that everything from the Icelandic volcano eruption to political upheaval in foreign countries can affect air travel and airlines’ profits, which will also drop the value of an airline ETF.