bearfund

First-Ever Airlines ETF Set for Takeoff

Why would anyone bother with a long airlines ETF? This is a great industry to short, or at most to pair a short ETF with a long position in the broad market.

In fact what we really need a very trivial ETF: long the entire market, but short airlines and retailers. Perfect for the long-term investor looking for a low-cost holding that's guaranteed to beat "the market".

Options Trader: Tuesday Outlook

Airlines are a vital service industry? Could've fooled me, I'd forgotten they even exist. They cancel about half their scheduled flights and the ones they do fly are always late. Service is awful, tickets are expensive, and don't even get me started about the "security" nonsense at airports. Does anyone even fly any more? You wouldn't know it looking at the airlines' financial reports. And it's not like these guys move huge freight volumes, either. If the airlines are "vital" because they're USPS contractors, I'll simply observe that the USPS could move just as much mail with 1/100 as many aircraft, and do it at a lower cost. FedEx has mastered this business so well it's boring.

Far from a "vital service", air travel is something virtually everyone can do without. There's a weak need for one or two airlines flying a few standard international routes and perhaps a dozen or so transcontinental routes for people who are in a real hurry. The need can't be that great; after all, the country went from backwater rebel colonies to a major world power in a little over 100 years, a time in which the global economy experienced phenomenal growth. In all that time no one had ever seen an airplane. Vital? These days we have other tools that didn't exist then, either, for those who really believe in the need. For business meetings, there's teleconferencing. If you're going to Grandma's house or shipping parcels, just take the train. UPS is to rail freight what FedEx is to air freight; they move parcels across the country in about 3 days. So much for trains being too slow for business needs. And even decrepit, forgotten, government-subsidised Amtrak can move you there in about the same time (and without taking off your belt, even!). Imagine what it would look like if we'd invested the tens of billions spent bailing out airlines in rail transit instead.

Your portfolio would surely be better off without these relics from the era of cheap oil, cheap credit, and government handouts. A century from now, ubiquitous air travel will be seen for what it was: a brief curiosity made possible by the chance convergence of economic, political, social, and technological circumstances. And yet life, and the economy, will keep on keepin on after it's gone.