As the U.S. government shutdown entered its 35th day, Transportation Secretary Sean Duffy’s dire warning of potential airspace closures started caution bells clanging across the aviation and ETF markets. Investors holding airline-focused ETFs, such as the U.S. Global Jets ETF (NYSE:JETS) and the Amplify Travel Tech ETF (NYSE:AWAY), are bracing for some level of uncertainty amid increasing flight delays and staffing at critical lows.
Airline ETFs In The Risk Radar
Although up more than 4% on Wednesday, JETS, which tracks major carriers like Delta Air Lines Inc (NYSE:DAL), United Airlines Holdings Inc (NYSE:UAL), American Airlines Group Inc (NASDAQ:AAL) and Southwest Airlines Co (NYSE:LUV), was under pressure this week as travel chaos loomed.
The fund may face further losses due to operational disruptions and lower passenger throughput if the shutdown extends into the holiday season. The trade group Airlines for America reported that over 3.2 million passengers were impacted by delays or cancellations stemming from controller absences during the shutdown, according to a Reuters report.
Travel Tech Funds Feel The Fallout
Also on the watch is AWAY, which invests in online travel and hospitality platforms such as Booking Holdings Inc (NASDAQ:BKNG) and Airbnb Inc (NASDAQ:ABNB). The concern isn’t just grounded airplanes; it’s waning traveler confidence and a potential spike in cancellations across the travel ecosystem. Booking and Airbnb stocks have both dipped in the past week.
Shutdown Disruptions Threaten To Close U.S. Airspace
Speaking at a press conference on Tuesday, Duffy said close to half of all flight delays on Nov 3 were due to staffing shortages, adding that “mass cancellations” and even partial airspace closures could be imminent if the political deadlock persists.
“You will see mass flight delays. You’ll see mass cancellations, and you may see us close certain parts of the airspace, because we just cannot manage it,” he warned.
The FAA says there are approximately 11,000 certified air traffic controllers now working in the United States, but in New York City, about 80% of them didn’t show up last week because they weren’t being paid. Duffy said some air traffic controllers have begun driving for DoorDash and Uber to make ends meet.
Past Shutdowns Offer A Mixed Playbook
This isn’t the first time political gridlock shook the skies: Airline ETFs were in focus during the 2019 shutdown, though the major airline stocks actually outperformed the market, gaining nearly 15%, according to a report by U.S. Global ETFs. Southwest Airlines had gained the most, surging close to 20%.
But Duffy cautioned this time may be different, noting that the air traffic controller recruitment pipelines have been disrupted, meaning the impact could last long after the government reopens.
Investor Takeaway: Volatility Now, Opportunity Later?
For investors, the turbulence could be a mix of risk and opportunity. A prolonged shutdown could pull down ETF performance through the holidays, but once operations stabilize, travel and airline funds could rebound sharply, as they did after previous disruptions.
For now, though, Duffy’s warning has somewhat grounded optimism. Without a deal in Washington, airline ETFs could become the next casualty of the U.S’s longest government shutdown to date.
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