The airline industry got another dose of encouragement on Monday, November 23, as a third potential COVID-19 vaccine was announced for the third straight week. British-Swedish pharmaceutical company AstraZeneca, working with Oxford University, said that its vaccine is between 70% and 90% effective.
This puts it at the lower end of efficacy, compared to Pfizer and Moderna’s vaccines—both are which are said to be as high as 95% effective—but the market reacted positively nonetheless.
Airline stocks in the U.S. Global Jets Index (JETSX) finished up 3.02%, with leisure travel-focused Hawaiian Airlines ranking first with an increase of 8.88%.
The AstraZeneca-Oxford news came a day after commercial air travel in the U.S. hit a new pandemic high as airports braced for the busy Thanksgiving travel season. Ignoring warnings from the Centers for Disease Control and Prevention (CDC), nearly 1.05 million passengers took to the skies in the U.S. on Sunday, November 22, beating the previous record of 1.03 million people on October 18.
As positive as these numbers are, they’re still well below where we were last year at this time, when approximately 2.25 million people boarded commercial jets in the U.S. We believe now could be a very attractive entry point for investors who believe demand for air travel can get close to those year-ago levels in the coming months.
The IATA Travel Pass, a Potential Gamechanger?
The global airline industry has been in the process of developing solutions to give potential passengers the confidence to book a flight. That includes so-called “COVID passports,” or mobile apps that demonstrate a flier’s virus-free status.
On Monday, November 23, the International Air Transport Association (IATA) unveiled just a solution, one that we believe could be a gamechanger for international flights in particular. Called the IATA Travel Pass, the solution will accomplish several things such as enabling passengers to find testing centers at departure locations and create contactless, digital passports. Most importantly, it will allow authorized testing centers to send test results—or vaccination certificates, when those become available—directly to passengers’ mobile devices.
If embraced by airlines and passengers alike, the Travel Pass could significantly ease people’s concerns and get them flying again. We believe this could be a tailwind especially for business travel, which has been hardest hit by the pandemic.
The app is scheduled to become available on Apple devices in the first quarter of 2021 and on Android devices in April, IATA says.
Low-Cost Leisure Travel Leads the Rally
Until then, airlines are leaning heavily on leisure travel, which has been recovering much faster than business travel. Carriers in the U.S. have retooled routes to capitalize on “snow and sun” markets such as California, Florida and Colorado.
Indeed, since the May bottom in airline stocks, the ones that have seen the biggest gains include low-cost carriers that historically have focused more on the leisure travel market. In the six months through Friday, November 20, a number of smaller international carriers have increased in the double and sometimes tripe digits, with Brazil’s Azul Airlines at the top (177.43%), following by the UK’s Jet2 (127.86%) and Gol Transportes Aéreos, or GOL, another Brazilian airline (102.22%).
JETS ETF Now at $2.5 Billion in Assets Under Management (AUM)
All of the airlines mentioned above are currently held in the U.S. Global Jets ETF (JETS), the only investment vehicle that focuses exclusively on the global commercial aviation industry. Besides investing in major flagship carriers, JETS invests in smaller regional carriers in nearly every corner of the world, as well as airport services companies and aircraft manufacturers.
You can see the full holdings by clicking here.
We like to call JETS a smart-beta 2.0 ETF. That means companies are selected and weighted based not just on market cap. We use a number of quant factors, including mean reversion, to help us put money on the leaders and toss out the laggards. Every quarter, JETS is recalibrated and reconstituted.
It’s been said that investors should “buy when there’s blood in the streets.” Today’s investors appear to have followed this old adage when it comes to airline stocks. Since the pandemic knocked airline equities down, deep-value and contrarian investors have piled into JETS, bringing its assets under management (AUM) up from roughly $55 million at the start of the year to an incredible $2.5 billion as of November 24.
See for yourself! Download a JETS fact sheet, investment case and more by clicking here.
Mean reversion is a theory used in finance that suggests that asset prices and historical returns eventually will revert to the long-run mean or average level of the entire dataset.
Smart beta defines a set of investment strategies that emphasize the use of alternative index construction rules to traditional market capitalization-based indices. Smart beta emphasizes capturing investment factors or market inefficiencies in a rules-based and transparent way.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.
The outbreak of the COVID-19 pandemic and the resulting actions to control or slow the spread has had a significant detrimental effect on the global and domestic economies, financial markets and industries, including airlines. U.S. Global Investors continues to monitor the impact of COVID-19, but it is too early to determine the full impact this virus may have on commercial aviation. Should this emerging macro-economic risk continue for an extended period, there could be an adverse material financial impact to the U.S. Global Jets ETF.