U.S. Global Investors launched a brand new exchange traded fund (ETF) on Thursday called the U.S. Global Jets ETF JETS 0.84%.
Benzinga had a chance to speak with Frank Holmes, CEO of Chief Investment Officer of U.S. Global Investors.
Below is Part Two of the interview; Holmes shared his thoughts on the airline industry.
Not Your Father’s Airlines
Long-time investors likely remember the mess that the airline industry found itself in less than a decade ago. Holmes explained how different the modern-day airline industry is from the airlines of the past.
“What you saw with the airline industry in 2011 to 2013, 70 percent were bankrupt, they were restructured, and then there was a slew of mergers,” Holmes told Benzinga.
“Whenever an industry has been reorganized, companies come out of the ashes like a phoenix: they’re more profitable and they’re more focused.”
What Changes Have Been Made?
Modern airliners are running more efficiently, and mergers have allowed operations to become more streamlined. Most importantly, airliners such as the “Big 4” (Delta Air Lines, Inc. (NYSE: DAL), United Continental Holdings Inc (NYSE: UAL), American Airlines Group (NASDAQ: AAL) and Southwest Airlines Co (NYSE: LUV)) are now profitable.
These changes to the industry haven’t come without pain, and they didn’t happen overnight.
“They canceled 30 percent of all the flights after all the mergers,” Holmes explained, “and all of a sudden they’re getting more revenue per flight, and that was a big turn in their cash flow.”
“Then they started charging for your bag, and then if you wanted to change your flight ticket, it didn’t matter if you were platinum or gold level, they charged you $25 to $200 to change your flight.”
While passengers might have been annoyed with the changes, two things are certain: passengers didn’t stop flying, and the strategy has worked.
No Respect?
Despite large jumps in share prices by many airline stocks, Holmes believes that the stellar valuations of airline stocks are still under appreciated by skeptical Wall Street analysts.
“It reminds me of the oil sector in 2003. U.S. oil stocks had just gone through $20 per barrel, and no one believed it. All of a sudden, as you went through quarter after quarter and oil went through $50 per barrel, everyone became bullish on U.S. oil companies and they started to take off.”
Holmes explained that many analysts remain unconvinced when it comes to airline stocks. However, he believes they will eventually come around, driving stocks to new highs.
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