An article today on breakingviews.com about the airline sector reminded me of my post earlier this year suggesting the Claymore/NYSE Arca Airline ETF (FAA) as a speculative buy. Let’s check in with the industry to see what’s up these days.
It appears Wall Street has recently gotten bullish, with Morgan Stanley leading the charge by upgrading their rating from neutral to overweight. The breakingview.com piece also noted there were signs of a rebound in airline traffic. Heathrow Airport, for example, had its busiest month on record in August, carrying 6.4-million passengers. All this news might account for the 23% run up over the past month, and a gain of about 40% from the date of the blog post.
But the breakingview.com author was still pessimistic about the industry’s ability to take capacity off the market and support air fares. This reduction is happening in the U.S. and at airlines like Lufthansa and British Airways, but other European airlines are still adding planes. The author also thought costs had not been cut enough and there was an ongoing shift away from business travel toward videoconferencing.
Well, the author may be right — or there may still be more momentum to ride in FAA. Whatever the case, the FAA position was just a speculative, “mad money” bet. And a 40% gain in 9 months is nothing to sneeze at. I would be inclined to take profits at this stage and let my core position in broad-based ETFs take the controls for the longer run.