Frank Holmes, CEO and CIO at U.S. Global Investors, spent Thanksgiving week in Japan with his family. The 14-hour nonstop United Airlines flight from Houston to Tokyo proved more than just a personal journey—the experience crystallized what data and earnings reports had already been showing: the airline industry remains remarkably resilient despite widespread economic anxiety.
“The flights were packed. Everything was packed coming home, there wasn’t an empty seat in the whole plane,” Holmes recalls. Even more telling, United’s operations extended beyond leisure travel, shuttling American military personnel between Tokyo and Guam on equally full aircraft.
For advisors seeking exposure to a sector that continues to outperform dire predictions, the U.S. Global Jets ETF (ticker: JETS) can offer access to an industry undergoing a fundamental transformation—one where premium revenue streams, supply constraints, and evolving consumer priorities are reshaping traditional airline economics.
The Revenue Revolution in the Skies
The most significant shift in airline economics isn’t happening in economy class. Premium cabins are generating revenue growth at three times the rate of standard seating, according to Holmes, with margins significantly higher as compared to economy sections. The gap represents more than incremental improvement; airlines have discovered a revenue stream capable of sustaining profitability even as macroeconomic concerns persist.
“The airlines continue to overwhelm the negative macro sentiment, the overwhelmingly negative macro sentiment. They’re overcoming it,” Holmes observes. Load factors—the percentage of available seats filled—were projected by skeptics to fall between 70% and 80% if conditions remained favorable, he says. Instead, carriers maintain load factors between 84% and 87%, he notes, demonstrating demand strength that contradicts broader economic anxiety.
The divergence between expectations and reality stems partly from how Americans prioritize spending. Holmes points to research from Harvard Business School’s seminal work on the experience economy, arguing that “people will cut goods but not a holiday experience.” The psychological shift means families facing financial pressure might defer purchasing a new television but protect their vacation plans. Airlines have adapted their business models to capitalize on the prioritization, introducing payment flexibility that further removes barriers to travel.
Financial innovation within the airline sector has expanded beyond traditional ancillary fees. Major carriers now offer 12-month payment plans for tickets, fundamentally altering the purchase dynamic. “They’re becoming like quasi-banks,” Holmes notes, highlighting how carriers leverage their credit card partnerships not just for loyalty programs but as financing mechanisms. The integration of financial services into airline operations creates additional revenue streams while maintaining ticket price levels that support robust margins.
Smart Beta 2.0: Building a Winning Team
The JETS ETF employs what U.S. Global Investors calls a “smart beta 2.0” strategy, combining quantitative analysis with fundamental factors to construct a portfolio aimed at capturing the most efficient operators in the global airline industry. “When we created JETS, the idea was similar to forming a football team. We said, ‘Okay, what team do we have to go up against?’” Holmes explains. The benchmark became the New York Stock Exchange Global Airline Index, with JETS designed to outperform through strategic selection rather than simple market-cap weighting.
The fund’s methodology focuses on identifying carriers that transport the most passengers while maintaining operational efficiency. Four airlines comprise 40% of the portfolio but represent 65% of all U.S. passenger traffic—concentration that aims to capture market dominance while managing diversification requirements. Quarterly rebalancing allows the strategy to adapt as competitive positions shift and operational performance evolves.
Performance differentiation matters in an industry where not all carriers execute equally. Holmes identifies United Airlines CEO Scott Kirby as having orchestrated a remarkable turnaround, with the stock surging in the previous year. Delta similarly maintains premium positioning through strategic execution. Conversely, American Airlines and Southwest face distinct challenges that have weighed on their relative performance within the sector.
American Airlines carries the burden of elevated debt levels and strategic missteps, including a partnership disruption with American Express that damaged the carrier’s reputation among frequent travelers. Southwest, which achieved 43 consecutive years of profitability before COVID-19, struggles to recapture its historical momentum. The bifurcation within the U.S. market contrasts sharply with international airline performance, where European carriers have delivered exceptional returns.
International Strength and Geographic Diversification
Holmes points to strong European airline equity performance—for example, International Airlines Group, owner of British Airways, has traded higher year-to-date. The outperformance includes both traditional carriers and aircraft manufacturers serving regional routes. Holmes notes that Bombardier, which produces private jets and smaller commercial aircraft suited for short-haul routes, has experienced significant share appreciation over the past year. Meanwhile, Brazil’s Embraer, specializing in fuel-efficient regional jets for routes like San Antonio to Houston, has delivered notable gains as well.
“What is carrying the weight of JETS currently is really Europe,” Holmes states. Business travel across the Atlantic has rebounded strongly, while Asian markets continue recovering from pandemic disruptions. Latin American carriers also contribute to the geographic diversification that sets JETS apart from purely domestic airline exposure, with Latam Airlines benefiting from broader equity market strength in the region.
The international composition creates resilience against region-specific challenges while capturing growth in markets where air travel penetration continues expanding. Middle-class growth in emerging economies, particularly India and China, drives demand as consumers with rising disposable incomes prioritize experiential spending. The demographic shift supports long-term industry growth beyond cyclical economic fluctuations.
Supply Constraints as Pricing Power
Perhaps the most underappreciated aspect of current airline industry dynamics involves supply-side constraints that protect margins from competitive pressure. The collapse of ultra-low-cost carriers, including Spirit Airlines’ technical insolvency and Frontier’s difficulties, removes price competition that historically has compressed industry profitability. “What does that do? It gives pricing power to United; it gives pricing power to Southwest Airlines. It gives pricing power to the other airlines, so they don’t have to drop their prices to compete with the cheaper carriers because they’re out of business or they don’t have enough jets,” Holmes explains.
Beyond competitive dynamics, structural factors limit airline capacity expansion even when demand justifies growth. Pilot shortages present the most significant constraint. Previous generations of commercial pilots largely came from military aviation, particularly the U.S. Air Force, bringing extensive flight experience to civilian carriers. Modern military pilots increasingly specialize in drone operations rather than traditional aircraft, creating a pipeline problem for airlines.
“You can’t really say, ‘Okay, we’re going to buy 50 new planes and 50 new routes, and we’re going to cut the prices to compete.’ Well, you don’t have the pilots, you don’t have the supply of the airplanes,” Holmes points out. Training requirements compound the challenge: pilots certify on specific aircraft types, meaning an Airbus-qualified pilot cannot simply switch to a Boeing without completing extensive retraining and recertification. The specialization creates operational rigidity that prevents rapid capacity deployment.
Aircraft delivery delays further constrain supply. Holmes observes that Boeing has struggled with production and delivery schedules, leaving airlines unable to expand fleets according to demand signals. Southwest Airlines historically maintained competitive advantage through fleet simplification, operating only Boeing 737 variants so pilots could substitute across routes seamlessly. Modern airlines operating mixed fleets lack such flexibility, intensifying the pilot shortage impact.
The convergence of competitive consolidation, pilot constraints, and aircraft delivery limitations creates economic conditions more akin to regulated utilities than cutthroat competition. “We’re going to maintain where the price levels are high, and that keeps the margins robust and strong. So, it makes it a great, resilient, resilient industry,” he concludes. For advisors, the transformation suggests airlines can sustain margins that historically proved cyclical and volatile.
Beyond Airlines: Complementary Exposures
While JETS primarily focuses on passenger carriers, the ETF includes exposure to airport operators, aircraft manufacturers, and airline-related services. Japanese airport companies, which Holmes notes are publicly listed, represent infrastructure benefiting from air travel growth without direct exposure to airline operational risks. The diversification aims to capture value creation across the aviation ecosystem while maintaining focus on core airline operations.
Holmes also highlights how launching JETS informed subsequent ETF strategies, including the U.S. Global Sea to Sky Cargo ETF (ticker: SEA). During COVID-19, when HIVE Blockchain Technologies could receive semiconductors only via air cargo, Holmes recognized how global shipping—both maritime and airfreight—serves as an economic barometer. Approximately 80% of commodities and manufactured goods travel by sea, he says, making cargo rates a real-time indicator of global GDP trends.
The shipping sector has demonstrated supply constraints similar to those of airlines. Disruptions in Panama force Chinese shipping routes to detour around South America, significantly extending transit times and driving rates higher. Houthi attacks in the Red Sea push vessels around the Cape of Good Hope, again increasing distances and costs.
“The strategy has worked: shipping stocks dropped during Trump’s April 2 tariff announcement but quickly rebounded to new highs. And despite the prolonged tariff wars, cargo shipping prices haven’t fallen—they’ve actually risen,” Holmes reports. The correlation between airline and shipping dynamics suggests broader transportation infrastructure benefits from supply limitations’ supporting pricing power.
Looking Forward
The airline industry’s resilience stems from multiple reinforcing factors: consumer prioritization of experiences over goods, premium cabin revenue growth, competitive consolidation, structural supply constraints, and international market recovery. Each element contributes to an operating environment markedly different from the highly competitive, margin-compressed industry that characterized previous decades.
For advisors considering JETS as a portfolio allocation, the ETF seeks to deliver exposure to an industry undergoing fundamental transformation while avoiding the stock-specific risks that have plagued individual carriers like American Airlines and Southwest. The smart beta 2.0 methodology aims to capture passenger traffic leaders and operational efficiency rather than simply replicating market capitalization weights.
Holmes’s optimism extends beyond airlines to broader market opportunities, including precious metals and shipping. Yet his direct experience on packed flights and robust load factors provides tangible evidence supporting the quantitative analysis underlying JETS’s construction—a perspective grounded in both market observation and personal conviction about industries positioned to benefit from enduring human desires to travel, connect, and experience the world.
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Additional Resources
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Disclosures
Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a statutory and summary prospectus by visiting www.usglobaletfs.com. Read it carefully before investing.
This content is for educational purposes only and not intended as investment advice. Advisors should conduct their own due diligence or visit JETSETF.com for more information.
Distributed by Quasar Distributors, LLC. U.S. Global Investors is the investment adviser to JETS.
