Wall Street bets against airlines despite summer travel boom

Americans are flying in record numbers as summer travel season kicks into gear, but traders are betting that airlines won’t be able to capitalize on it. Short interest in the $1.1b aviation industry exchange-traded fund US Global Jets (ticker JETS) accounts for over 27% of the ETF’s free float after touching 30% earlier this month, the highest in data going back to 2019, according to S3 Partners LLC. The lack of faith makes sense based on the performance of airline stocks. JETS is down 13% over the past 12 months and the nine-member S&P Supercomposite Airlines Index has plunged 22%, compared with a 26% surge in the S&P 500 Index. Meanwhile, air travel is booming. US carriers are projected to transport a record 271m passengers from June 1 to Aug. 31, representing a 6.3% jump from the same period last year, according to industry trade group Airlines for America. And globally, airline profits are expected to rise to $30.5b in 2024, based on projections from the IATA, which recently lifted its outlook from the $25.7b it estimated back in December. So what’s the problem for airlines? In a word: margins. Shortages of pilots and cabin crew have forced carriers to increase wages to attract talent. Air traffic control constraints have led to costly disruptions. And airlines are finding that their growth plans were overly ambitious, leading to an abundant supply of available seats and cut-rate promotions to fill planes. Meaning, many of the passengers flooding airports right now are boarding at cheaper prices. “Just because TSA says there’s a heck of a lot of people going through security, that doesn’t mean that we’ve got an industry that’s killing it,” said George Ferguson, a Bloomberg Intelligence analyst. “If I were an investor, I would want record profits, too — and from a margin perspective, we don’t have that.”<br/>