Tough Road Ahead for the Aviation Industry? ETFs to Consider

Struggling with delivery delays and supply-chain issues, the aviation market is set to witness a tough 2025. According to CNBC, issues such as spare part shortages, persistent reliability and maintenance problems with engine manufacturers highlight the challenging ecosystem of companies in the aviation market.

Per Brendan Sobie, an independent analyst at Sobie Aviation, as quoted on CNBC, the challenging period in the aviation industry is expected to continue, with no respite in the near future, pointing to the long-term nature of the difficulties ahead.

Safety Challenges Add to Aviation’s Growing Woes

Questions surrounding the safety of flight operations and the standards followed by airlines globally have resurfaced following recent airline crashes during the holiday season. Following last year’s door panel incident, Boeing implemented a series of changes, including mandatory workforce training and enhanced inspections.

This underscores that airline companies still have much to address in terms of safety and quality, which could lead to higher costs as they implement improved policies, affecting consumer demand due to higher fares.

Inflation & Rates: Double Trouble for Aviation

As a capital-intensive industry, interest rates are among the most direct economic factors influencing aircraft financing costs. The aviation sector may face additional hurdles in 2025, with forecasts of fewer interest rate cuts by the Fed, potentially leading to higher rates for a longer period. According to the CME FedWatch, rates are expected to remain unchanged in January, with high possibilities of a rate cut seen in June.

Projections of rising inflation, driven by Trump’s key campaign promises of imposing new tariffs and initiating a “mass deportation,” add to the industry woes. Rising price levels can lead to increased financing needs for companies in the industry, along with further delays in interest rate cuts.

Rising inflation and higher interest rates could make travel more expensive for consumers, adding pressure on the industry. To cope with elevated financing costs and supply shortages, companies may pass on the burden to consumers through higher fares. According to Scott Keyes, founder of Going, as quoted on CNBC, airfares are expected to rise in 2025.

ETFs in Focus

Below, we highlight a few ETFs from the aviation market for investors to consider.

U.S. Global Jets ETF (JETS)

U.S. Global Jets ETF seeks to track the performance of the U.S. Global Jets Index with a basket of 51 securities. The fund has gathered an asset base of $1.09 billion and charges an annual fee of 0.60%. JETS has an exposure of 49.52% to large-cap securities and a beta of 1.38, which tilts the fund toward a somewhat riskier investment option.

U.S. Global Jets ETF has Zacks ETF Rank #3 (Hold), with a High risk outlook. United Airlines UAL, American Airlines AAL and Southwest Airlines LUV hold the top three spots in the fund, with exposures of 11.34%, 10.61% and 10.37%, respectively.

JETS has gained 22.25% over the past three months and 33.13% over the past year.

Themes Airlines ETF (AIRL)

Themes Airlines ETF seeks to track the performance of the Solactive Airlines Index with a basket of 29 securities. The fund has gathered an asset base of $0.9 million and charges an annual fee of 0.35%. AIRL has an exposure of 49.9% to mid-cap securities, which makes the fund a riskier investment option compared to JETS.

United Airlines and Alaska Air Group ALK hold the top two spots in the fund, with exposures of 6.78% and 6.02%, respectively. Themes Airlines ETF has gained 13.36% over the past three months and 16.61% over the past year.