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Air Travel Demand Nears 1-Year High: ETFs to Fly High

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Airline stocks, which were badly hit by the plunge in air travel demand due to COVID-19, have been showing a strong rebound as the economy is recovering. The wider reach of vaccinations against the novel infection has propelled demand for air travel.

According to the latest data from Transportation Security Administration (TSA), about 1.357 million travelers checked in at American airports on Mar 12 — the highest number since Mar 15, 2020.

Although the figure is much better than the record-low 87,534 passengers seen on Apr 14 last year, it is still down 38% from the pre-COVID-19 levels.

The solid trend is likely to continue with more vaccines in progress and a new $1.9 trillion stimulus that will help in speedy economic recovery and thus lead to higher demand for travel and bookings. The new $1.9 trillion package includes additional payroll support for the airlines. It means that air carriers can afford to keep staff on hand in anticipation of a rebound and avoid the costly retraining process that comes with furloughs (read: Consumer Discretionary ETFs to Ride Stimulus & Vaccine Optimism).

President Joe Biden expects to have enough coronavirus vaccines for all Americans by May 1. The latest NPR analysis of archived data from the CDC's vaccination tracker revealed that distributions of vaccines skyrocketed in the last two weeks. Since early January, distributions reached between 8 million and 10 million total doses a week and around 20 million doses both in the last week of February and again the first week of March. If Pfizer (PFE - Free Report) and Moderna (MRNA - Free Report) keep up with its goal of delivering the vaccines, the distributions could reach 100 million for both.

Pfizer is on target to make 120 million doses available for shipment across the United States by the end of March and an additional 80 million doses by the end of May. It expects all 300 million contracted doses to be made available for shipment in the United States by the end of July, enabling vaccination of up to 150 million Americans. Meanwhile, Moderna expects to distribute 100 million doses by the end of the first quarter.

Recently, the FDA approved Johnson & Johnson’s (JNJ - Free Report) single-dose vaccine for use in the United States. JNJ has started shipping and aims to deliver more than 20 million doses to the U.S. government in March and targets 100 million doses in the first half of 2021. Merck (MRK - Free Report) will help manufacture JNJ’s vaccine, which will significantly boost the vaccination campaign and hopefully bring a return to normalcy soon (read: Travel ETFs Flying High on Vaccine Optimism).

After a worst-ever year for air travel demand in 2020, the International Air Transport Association (IATA) expects demand to improve 50.4% in 2021 from last year that would bring the industry to 50.6% of the 2019 levels. Airlines for America, the airline trade group, estimates that passenger volumes are unlikely to return to pre-COVID-19 levels before 2023 or even 2024.

As vaccinations rise and the pandemic subsidies, travel demand is expected to roar. Per Scott's Cheap Flights survey of more than 5,800 members, more than half (61%) are feeling hopeful about travel and plan to make up lost time. Perhaps overly optimistic, 83% of respondents say they plan to take at least two domestic trips, with 44% planning two or more international journeys in 2021.

Investors should tap the rebound in air travel with the following two ETFs:

U.S. Global Jets ETF (JETS - Free Report)

This is the only ETF dedicated to the airline industry, having gained 17.5% over the past month. This fund provides exposure to the global airline industry, including airline operators and manufacturers from all over the world, by tracking the U.S. Global Jets Index. In total, the product holds 40 securities with the highest concentration on the top four largest U.S. carriers, which make up for nearly 10% share each. Other firms account for no more than 4.1% of assets. American firms account for 67.5% of assets while Canada, China and Japan round off the next countries. The fund has gathered $3.9 billion in its asset base while sees a solid trading volume of nearly 6 million shares a day. It charges investors 60 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a High risk outlook (see: all the Industrial ETFs here).

ETFMG Travel Tech ETF (AWAY - Free Report)

This is the first ETF that offers direct access to the technology-focused global travel and tourism industry. It follows the Prime Travel Technology Index, charging investors 75 bps in annual fees. The fund holds 29 stocks in its basket with travel bookings & reservations companies accounting for 48.6% of assets, followed by 20.1% share in travel advice firms. AWAY has accumulated $244.7 million in its asset base and trades in an average daily volume of 360,000 shares. The ETF has gained 12.4% in a month (read: Cash in on the Reopening US Economy Optimism With These ETFs).

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