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Time for Airlines ETFs on Raised Profit Forecast for 2024?

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The International Air Transport Association (IATA) said on Monday that global airlines increased their profit forecast for 2024, projecting industry-wide revenues just shy of $1 trillion, driven by a record number of travelers boarding flights. Notably, airline activity is often seen as an indicator of business or consumer confidence and trade.

The global airlines industry is expected to generate $30.5 billion in profit this year, surpassing the upwardly revised $27.4 billion forecast for 2023. This positive outlook is partly due to airlines maintaining control over underlying labor costs despite recent strikes.Their profit per passenger is $15.20, compared to the global average of about $6.

The forecast puts airlines ETFs like U.S. Global Jets ETF (JETS - Free Report) and Themes Airlines ETF (AIRL - Free Report) in focus.

Passenger and Cargo Yield Expectations

Passenger yields, or the average amount paid by a passenger to fly one mile, are expected to rise by 3.2% compared to 2023 due to constrained capacity growth. In contrast, cargo yields are expected to fall by 17.5% in 2024 as freight markets return to normal patterns following a pandemic boom.

Recovery from Pandemic Losses

This forecast comes four years after the industry experienced a $140 billion loss in 2020 due to the pandemic. "The environment is better than we had expected, particularly in Asia," said Director General Willie Walsh during an annual meeting of IATA's more than 300 members, which make up over 80% of global air traffic, as quoted on Reuters.

Regional Profit Forecasts

In Asia, IATA has more than tripled its profit forecast for 2024 to $2.2 billion despite a slow recovery in international travel in China. North America remains the most profitable region, with a forecast of $14.9 billion, unchanged from earlier predictions, thanks to strong consumer spending despite high inflation.

Any Wall of Worry?

The industry cautioned that its ability to meet the strong travel demand is being deterred by disruptions to global supply chains, including delays in fleet deliveries. Plus, margins remain thin in the industry with the current performance is still well below the industry's requirements. Unforeseen maintenance issues are also posing challenges to the industry.

ETFs in Focus

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

The underlying U.S. Global Jets Index tracks the performance of Airline Companies across the globe with an emphasis on domestic passenger airlines. Delta Airlines (11.20%), United Airlines (10.57%), American Airlines (10.41%) hold the top three spots in the fund. The fund charges 60 bps in fees. The fund is off 2.1% past month but gained 2.1% on May 31.

Themes Airlines ETF (AIRL - Free Report)

The underlying Solactive Airlines Index identifies the largest 30 airline companies by market capitalization. Ryanair Holdin (4.87%), Alaska Air (4.78%) and SkyWest (4.77%) hold the top three spots. The fund charges 35 bps in fees. The fund has lost 2.7% past month and is up 1.1% on May 31.

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