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Can Q2 Earnings Save Airline ETF from Being Grounded?

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The flight has been rough for airline stocks this year. Several issues have plagued the space. The worst among these are the upsurge in terror attacks, the outbreak of the Zika virus, global growth worries and cutthroat competition (read: France Bleeds Again: ETFs & Stocks in Focus).

As a result, the pure-play aviation ETF U.S. Global Jets ETF (JETS - Free Report) lost about 10% in the last three months and is off about 10.7% so far this year (as of July 21, 2016).  To add to this, Brexit will likely leave a huge negative impact on the airline sector (read: UK Votes for Brexit: ETFs Winners & Losers).

Against such a backdrop, all eyes have been fixed on airlines earnings this season. Overall, the sector put up a decent earnings show, with mixed-to-upbeat results. Let’s take a look at the earnings in detail:

Inside the Earnings

Delta Air Lines Inc. (DAL - Free Report) started off the second-quarter earnings season in the airline space with a bottom-line beat and top-line miss.  Operating revenues of $10.4 billion were marginally short of the Zacks Consensus Estimate of $10.5 billion and 2.4% lower than the year-ago figure. The carrier’s earnings (excluding special items) of $1.47 per share beat the Zacks Consensus Estimate by 5 cents. Earnings also improved 15.7% on a year-over-year basis thanks to low fuel costs.

United Continental Holdings ((UAL - Free Report) ) posted a second-quarter earnings beat on July 19 (after market close). Earnings (on an adjusted basis) of $2.61 per share beat the Zacks Consensus Estimate by 8 cents. Earnings, however, declined 21.1% on a year-over-year basis owing to lower revenues. Operating revenues of $9.4 billion, however, edged past the Zacks Consensus Estimate of $9.38 billion.

Low cost carrier Southwest Airlines Co. (LUV - Free Report) came up with mixed results for the second quarter, missing on earnings but beating on revenues. The carrier’s earnings (on an adjusted basis) of $1.19 per share fell short of the Zacks Consensus Estimate of $1.22. Earnings, however, increased 15.5% on a year-over-year basis. Revenues of $5.38 billion edged past the Zacks Consensus Estimate of $5.37 billion and increased 5.3% year over year.

Alaska Air Group Inc. (ALK - Free Report) reported second-quarter 2016 earnings per share of $2.12, which surpassed the Zacks Consensus Estimate of $2.08 and increased 20% year over year. Quarterly revenues also increased 4% year over year and were roughly in line with the Zacks Consensus Estimate of $1.5 billion.

American Airlines Group Inc.’s ((AAL - Free Report) ) second-quarter adjusted earnings per share of $1.77 breezed past the Zacks Consensus Estimate by $0.12. However, quarterly earnings declined over 32% year over year. American Airlines’ operating revenues of $10.36 billion declined 4.3% from the year-ago quarter. Quarterly revenues however beat the Zacks Consensus Estimate of $10.31 billion.

Should You Buy JETS?

By now, one must have realized from the indicators that the mood in the airlines industry is not as downbeat as the stock trend is showing. The main reasons for the low flying airlines stocks seem to be terror attacks and geo-political crisis (read: Political Instability Puts Turkey ETF in Focus).  

The ongoing emergency in Turkey following a failed military attack, the recent flare of terror attacks in various corners of globe, to-be-seem Brexit impact on the global economy and the volatility in currencies are likely to keep airline stocks on the edge. Now it is to be seen how long the U.S. economic revival drives these stocks and the ETF higher (read: Best Performing Currency ETFs of 1H16).

Nevertheless, investors having a strong stomach for risks and seeking to play the sector on decent earnings, may target it in the ETF form. Below we highlight the fund in detail:

JETS in Focus

The $43.4 million-fund holds over 30 stocks in its portfolio and is concentrated on a few individual securities, as it allocates about 70% to the top 10 holdings. American Airlines (13.97%), United Continental (12.75%), Delta Airlines (11.20%) and Southwest Airlines (10.85%) are the top four elements in the basket. Alaska Air holds the ninth position in the fund with 3.93% weight.

The product charges 60 bps in fees. The fund gained about 4.5% in the last 10 trading sessions (as of July 22, 2016) which were the peak of airlines earnings’ releases.

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