Airline ETF Is in a Holding Pattern

On Monday, both British Airways and Aer Lingus reported they have begun to see stabilization in ticket prices. This news helped lift the Claymore/NYSE Arca Airline ETF (FAA - commentary - Trade Now) 2.6% during Monday's trading. British Airways and Aer Lingus represent 1.5% and 1.6% of FAA, respectively.

But despite the positive news from European firms, I would advise investors to stay away from FAA. U.S. airlines, which make up the bulk of FAA, are not likely to see a lift this Thanksgiving thanks to low revenue predictions as a result of continued economic stress. With a heavy exposure to less-optimistic domestic airlines and a low trading volume, I don't see much positive for this fund in the near future.

FAA is designed to track the performance of the NYSE Arca Global Airline Index. Top holdings in this ETF include Delta Air Lines (DAL - commentary - Trade Now) (15.5%), Southwest Air Lines (LUV - commentary - Trade Now) (15%) and Continental Air Lines (CAL - commentary - Trade Now) (14%). In the most recent three-month period ended Nov. 9, the fund gained 5.39%. While in the black, this fund remains a volatile holding. Average volume is recently 31,000, but it has had a daily range from just 1,000 to 54,000 just in November.

A recent forecast from the Air Transport Association showed 4% fewer U.S. passengers hitting the skies during this year's Thanksgiving period compared to last year. In hopes of spurring demand, airlines have been slicing ticket prices to their lowest rates since 1998, according to MarketWatch.

The drop in ticket prices come coupled with recent drastic cuts in capacity across the U.S. airline companies. According to the ATA, this year's reduction is the steepest year-to-year drop since 1942.

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At the time of publication, Dion had no positions in the stocks mentioned.

Don Dion is president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.