Airline stocks have been the best performing sector of the S&P Industrials Index for the past one-, three- and five-year periods.

And not simply because – as some investors believe – oil prices have plunged.

[ad#Google Adsense 336×280-IA]True, fuel is 30% of the typical carrier’s operating costs.

But energy prices have only been falling for the past 10 months.

These lower costs are only beginning to be realized by the airlines. Most hedge their fuel and are still locked into $100-per-barrel oil prices.

So if you think profits are impressive now, just wait until the hedges are off.

Other major factors are also likely to push the airlines to higher altitudes.

Let’s start with industry consolidation and restructuring.

In recent years, America West merged with U.S. Airways, Northwest merged with Delta (NYSE: DAL), Continental merged with United (NYSE: UAL), TWA merged with American (Nasdaq: AAL), and AirTran merged with Southwest (NYSE: LUV), to name just a few.

U.S. airlines have also been paying down debt. For example, in 2010 the industry’s total debt as a percentage of operating revenues was a whopping 66%. By last year it had dropped to 41.4%.

Ancillary revenue is also rising sharply. For example, your airline may be earning a commission on your travel insurance, credit card, car rental or hotel accommodations.

There is also revenue generated from in-flight magazines, advertising sold on loading bridges and airport lounges, and fee-based placement of product samples. Plus, you’re no doubt aware of onboard food and beverage sales, baggage charges, seat upgrades, access to VIP lounges, and priority check-ins.

Since 2009, revenue per available seat mile has been trending upward for U.S. carriers. And the number of seats is increasing too. Planes have been reconfigured with more rows and thinner seats.

Aircraft fuel efficiency is improving, too. For example, an Airbus A350-900 or Boeing 787 Dreamliner is 25% more fuel efficient than an older Boeing 747 or McDonnell-Douglas DC-10-30.

The expanding global middle class is also increasing the demand for travel. In 2009, there were 1.8 billion global flyers. By 2020, it is expected to be 3.2 billion – and 4.9 billion by 2030.

Of course, what really drives companies’ share prices is accelerating earnings. And the airlines are about to experience that in spades. Carriers should post $25 billion in global net profit in 2015, up 25% from last year.

So how do you play this? Well, you could go out and buy a couple dozen publicly traded airline stocks. Or you could plunk for a few shares of the only ETF in the country that specializes in airline stocks: U.S. Global Investors Jets ETF (NYSE: JETS).

If you’re not familiar with it, you can be forgiven. It only began trading [recently].

The fund is managed by U.S. Global Investors, an innovative investment manager with vast expertise in global markets and specialized sectors.

The Jets ETF invests in every sector benefiting from the resurgence of the industry, not just the airlines themselves but aircraft manufacturers, airports and terminal services.

The fund will hold well-known names like American, Delta, United, JetBlue (Nasdaq: JBLU) and Southwest, as well as smaller carriers like Alaska Air Group (NYSE: ALK), Allegiant (Nasdaq: ALGT), SkyWest (Nasdaq: SKYW) and WestJet, in addition to major international carriers like Ryanair (Nasdaq: RYAAY), Aegean, Lufthansa, Qantas, Singapore Airlines, Cathay Pacific and Air China.

In sum, due to industry consolidation, restructurings, lower fuel costs, diversified revenue streams, increasing air traffic and rising profits, airline stocks are ready to rise.

And the Jets ETF is just the ticket.

Good investing,

Alex

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Source: Investment U