We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Does Warren Buffett's Latest Move Spell Doom for Airline ETF?
Read MoreHide Full Article
“The world has changed for the airlines,” said Warren Buffett during the Berkshire’s virtual shareholder’s meeting on May 2. This statement highlights the grim scenario of the most-hit sector, airlines, during the coronavirus pandemic. In fact, since Feb 20, marking the beginning of the broader virus-related sell-off, the S&P Supercomposite Airlines Industry Index has plunged nearly 60% compared with the S&P 500 Index’s about 16% decline (per a Bloomberg article).
Berkshire has dumped $4 billion worth of its airline companies which include some major airlines like American Airlines Group Inc. (AAL - Free Report) , United Airlines Holdings (UAL - Free Report) , Delta Air Lines (DAL - Free Report) and Southwest Airlines Co. (LUV - Free Report) because of the coronavirus pandemic. Notably, as of December 2019, Buffett’s Berkshire held 42.5 million (10% stake) American Airlines shares, 58.9 million (9.2% stake) Delta shares, 51.3 million (10.1% stake) Southwest Airlines shares and 21.9 million (7.6% stake) United Airlines shares, per a CNBC article (read: 5 ETF Strategies to Follow Warren Buffett's Coronavirus Tips).
Consequently, shares of Delta, United Airlines and American Airlines declined more than 5% on May 4. In fact, plane manufacturer like The Boeing Company (BA - Free Report) lost 1.4% with jet-engine producer General Electric Company (GE - Free Report) losing around 4.5% on Monday following Buffett’s comments on the airline industry during the weekend
Coronavirus Impact on Airlines
The virus’ spread has resulted in declining air travel plans and travel restrictions imposed by the government. Consequently, the airlines’ top lines have suffered a material impact as passenger revenues form the largest component of their total revenue base. In fact, with the pandemic showing almost no signs of waning, air travel demand is likely to remain stressed, at least in the near term. In wake of such a gloomy scenario, Delta Air Lines warned that revenues in second-quarter 2020 (Apr-Jun period) are likely to decline 90% year over year.
Meanwhile, U.S. passenger airlines agreed in principle to a $25-billion rescue package under the Coronavirus Aid, Relief and Economic Security (CARES) Act per the U.S. Treasury Department on Apr 14. According to the deal, major carriers will receive 70% of the funds in cash that need not be paid back. But the rest 30% of the economic stimulus needs to be repaid. Also, United Airlines, JetBlue Airways Corporation (JBLU - Free Report) , American Airlines and Delta Air Lines have been observed to announce cuts to their international and domestic schedules, largely due to waning demand. Moreover, airlines have taken various cost-cutting measures like putting a freeze on hiring and deferring capital expenses to fight the pandemic.
However, assessing the hurdles for the sector, Barclays analyst Brandon Oglenski who downgraded the airlines group to neutral from positive has commented that “apart from not knowing when revenue will return for an industry collectively burning an estimated $20 billion of cash this quarter, sizable debt balances and yet unknown structural cost burdens loom large,” per a Bloomberg article.
Against this backdrop, investors can look at the following airline ETF that might be at risk:
U.S. Global Jets ETF (JETS - Free Report) — down 57.21% year to date
The fund provides investors access to the global airline industry, including airline operators and manufacturers from all over the world. With AUM of $610 million, the fund holds a basket of 34 stocks. It trades in average volumes of about a million shares a day. It also has an expense ratio of 60 basis points. The fund carries a Zacks Rank of 3 (Hold), with a High-risk outlook (read: ETF Areas to Gain From Plunging Oil Prices).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Does Warren Buffett's Latest Move Spell Doom for Airline ETF?
“The world has changed for the airlines,” said Warren Buffett during the Berkshire’s virtual shareholder’s meeting on May 2. This statement highlights the grim scenario of the most-hit sector, airlines, during the coronavirus pandemic. In fact, since Feb 20, marking the beginning of the broader virus-related sell-off, the S&P Supercomposite Airlines Industry Index has plunged nearly 60% compared with the S&P 500 Index’s about 16% decline (per a Bloomberg article).
Berkshire has dumped $4 billion worth of its airline companies which include some major airlines like American Airlines Group Inc. (AAL - Free Report) , United Airlines Holdings (UAL - Free Report) , Delta Air Lines (DAL - Free Report) and Southwest Airlines Co. (LUV - Free Report) because of the coronavirus pandemic. Notably, as of December 2019, Buffett’s Berkshire held 42.5 million (10% stake) American Airlines shares, 58.9 million (9.2% stake) Delta shares, 51.3 million (10.1% stake) Southwest Airlines shares and 21.9 million (7.6% stake) United Airlines shares, per a CNBC article (read: 5 ETF Strategies to Follow Warren Buffett's Coronavirus Tips).
Consequently, shares of Delta, United Airlines and American Airlines declined more than 5% on May 4. In fact, plane manufacturer like The Boeing Company (BA - Free Report) lost 1.4% with jet-engine producer General Electric Company (GE - Free Report) losing around 4.5% on Monday following Buffett’s comments on the airline industry during the weekend
Coronavirus Impact on Airlines
The virus’ spread has resulted in declining air travel plans and travel restrictions imposed by the government. Consequently, the airlines’ top lines have suffered a material impact as passenger revenues form the largest component of their total revenue base. In fact, with the pandemic showing almost no signs of waning, air travel demand is likely to remain stressed, at least in the near term. In wake of such a gloomy scenario, Delta Air Lines warned that revenues in second-quarter 2020 (Apr-Jun period) are likely to decline 90% year over year.
Meanwhile, U.S. passenger airlines agreed in principle to a $25-billion rescue package under the Coronavirus Aid, Relief and Economic Security (CARES) Act per the U.S. Treasury Department on Apr 14. According to the deal, major carriers will receive 70% of the funds in cash that need not be paid back. But the rest 30% of the economic stimulus needs to be repaid. Also, United Airlines, JetBlue Airways Corporation (JBLU - Free Report) , American Airlines and Delta Air Lines have been observed to announce cuts to their international and domestic schedules, largely due to waning demand. Moreover, airlines have taken various cost-cutting measures like putting a freeze on hiring and deferring capital expenses to fight the pandemic.
However, assessing the hurdles for the sector, Barclays analyst Brandon Oglenski who downgraded the airlines group to neutral from positive has commented that “apart from not knowing when revenue will return for an industry collectively burning an estimated $20 billion of cash this quarter, sizable debt balances and yet unknown structural cost burdens loom large,” per a Bloomberg article.
Against this backdrop, investors can look at the following airline ETF that might be at risk:
U.S. Global Jets ETF (JETS - Free Report) — down 57.21% year to date
The fund provides investors access to the global airline industry, including airline operators and manufacturers from all over the world. With AUM of $610 million, the fund holds a basket of 34 stocks. It trades in average volumes of about a million shares a day. It also has an expense ratio of 60 basis points. The fund carries a Zacks Rank of 3 (Hold), with a High-risk outlook (read: ETF Areas to Gain From Plunging Oil Prices).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>