Fuel Is the Key to Airline ETF's Success

| About: Guggenheim Airline (FAA)

The beleaguered airline industry may finally be seeing a shift in tides after a couple of positive fourth-quarter earnings reports. The ETF that targets the sector has enjoyed a 6.3% gain year-to-date.

A few U.S. airliners posted modest gains in the fourth quarter, aided by lower-than-expected fuel costs, reports Ann Keeton for The Wall Street Journal. Companies like Southwest Airlines (NYSE: LUV) are using a combination of financial tools to hedge against rising fuel prices. Southwest expects average fuel costs to rise around $2.35 a gallon, or up into the $100- to $120-a-barrel range, this year.

However, companies that were hedging against rising oil prices lost millions last year after they locked in above-market prices. Southwest says that’s the industry’s greatest risk this year, too.

Both Southwest and Continental (NYSE: CAL) reported profits in the fourth quarter, thanks to lower-than-expected fuel costs.

AMR Corp. (NYSE: AMR), parent company of American Airlines, posted a $1.5 billion loss for 2009, according to Portland Business Journal. The good news is that the company’s percentage of total seats filled reached 81.1% in the fourth quarter, up from 78.3% a year earlier. AMR Corp. stated that it has $4.9 billion in cash and short-term investments and a restricted balance of $460 million.

Airline stocks were caught up in the wider market selloff on Thursday after posting fourth-quarter gains, writes Christopher Hinton for MarketWatch. The NYSE Arca Airline Index surged more than 32% in the last three months on increased demand for flights. However, the potential liquidity issues in the industry and cautious outlook on January revenue growth has cooled investor exuberance.

  • Claymore/NYSE Arca Airline ETF (NYSE: FAA): AMR is 15.7%, LUV is 14.8%

Max Chen contributed to this article.

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