On Monday, airline stocks took a beating in response to the suspension of transatlantic jetting and last week’s run-up on merger speculations. Is this just short-term volatility or does it reflect a reversal in the fortunes of airline exchange traded funds (ETFs)?

Last week, we reported that Glenn Curtis of Investopedia didn’t think the fundamentals of the airline industry looked promising. Just to recap, he said that:

  • Higher fuel prices would pinch margins and lead to increased ticket prices.
  • High unemployment, rising interest rates, and higher taxes would reduce discretionary income.
  • Oil is forecast to average $81, up from $62.

However, we also reported on the recent merger speculations swirling around United (NASDAQ: UAUA), Continental (NYSE: CAL), and U.S. Airways (NYSE: LCC). If any of these airlines were to merge, there would be some upside as the airlines would be able to consolidate resources to boost revenues and margins. [Airline ETF Flying High, But Will It Stick?]

But on Monday, investors decided to take profits on the merger speculations and also reacted to the loss of revenue caused by Iceland’s volcanic activity, reports Christopher Hinton of Market Watch. The latter event may have precipitated the former, but neither reflects any kind of fundamental shift in the airline industry. Investors will have to continue to monitor the sector closely for signs of positive or negative trending. [Shipping ETFs Sailing on an Open Course.]

European flights have more or less resumed, but officials are cautioning that the chaos is far from over. The backlog of flights continues to grow, and scientists fear more volcanic activity in Iceland. Heathrow Airport in London still isn’t open, and may not do so until tomorrow. [Industrial ETFs Heating Up.]

For more stories on the airline industry, visit our airlines category.

  • Claymore/NYSE Arca Airline (NYSEArca: FAA)

Sumin Kim contributed to this article.