4 Dec

Sustained US economic growth boost airline travel demand

WRITTEN BY Teresa Cederholm

Economic growth in the US

The airline industry is an important contributor to the growth of the US economy. According to Airlines for America (or A4A), the airline industry drives $1.5 trillion in US economic activity and more than 11 million US jobs. Major US airlines contributing toward this economic activity are Delta Airlines (DAL), United Continental (UAL), American Airlines (AAL), Southwest (LUV), and JetBlue Airways (JBLU).

ETFs such as the iShares Transportation Average ETF (IYT) and the SPDR S&P Transportation ETF (XTN) hold stocks of some of these airline companies. Below is a summary of trends and forecasts for important economic indicators that impact the airline industry.

Sustained US economic growth boost airline travel demand

Real GDP growth

In the US, economic growth picked up in 2Q14 after slowing down in the first quarter of the year. Real GDP increased at an annualized rate of 3.9% in 3Q14 and 4.6% in 2Q14 after declining by 2.1% in 1Q14. According to the Bureau of Economic Analysis (or BEA), the increase in GDP in 3Q14 was driven by a 2.2% increase in consumer spending and a rise in business investment.

There was also an increase in federal government spending and export of goods. The unemployment rate decreased by 0.2% in a month to 5.9% in September from 6.1% in August, and by 1.3% in a year from 7.2% in September 2013.

Disposable income

Real disposable personal income is estimated to have increased by 3.1% in 2Q14 and 2.3% in 3Q14. It is estimated to grow at 2.5% in 2014 and 2015, according to the US Energy Information Administration (or EIA). From August to September, it increased by 2.2% to $12,003 billion and by 0.2% in October.

During times of economic prosperity, people have higher disposable income to spend on leisure trips. Plus, businesses make higher revenues and profits when the economy improves, allowing them to support higher travel expenses.

Corporate profits

Corporate profits, an important indicator of business travel, increased at a quarterly rate of 8% to $2,106 billion in 2Q14 after declining by 9.4% in the first quarter. Corporate profits increased by 2.1% quarter-on-quarter in 3Q14 to $2,150 billion. Over the last 12 months, corporate profits increased by 0.4%.

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