Growing demand, falling crude oil prices drive airline growth trajectory in October (Part 3 of 14)
Transportation Services Index
The transportation services index (or TSI) measures changes in the passenger and freight movements in the US domestic market. The TSI includes only domestic for-hire transportation by companies that provide transportation services for a fee. It excludes noncommercial passenger transportation, taxis, and intercity bus services.
The TSI is released monthly by the Bureau of Transportation Statistics (or BTS), which is part of the Department of Transportation. The TSI consists of three indexes: freight index, passenger index, and combined index. It considers all modes of transportation used for hire, including air, rail, road, and water.
The freight index encompasses five modes of transportation: trucking, air, water, rail, and pipeline. Although trucking is the most widely used mode of transportation, the fastest growing mode of transport is by air. However, air transport is the smallest mode in terms of volume. The freight TSI increased by 0.2% (quarter-over quarter) in 2Q14 after declining by the same percentage in 1Q14, when adverse weather conditions impacted the sector.
In June 2014, however, the index decreased to 118.7 from its all-time high level of 120.3 in May 2014. It picked up again, increasing for three consecutive months in July, August, and September. In September, the index reached its all-time high of 121.5 . On a year-to-date basis, the index was up by 2.1% in September 2014.
The passenger TSI encompasses three modes of transport: air, rail, and transit. Aviation is the passenger TSI’s largest component. The passenger TSI increased by 0.4% (quarter-over quarter) in 2Q14 and by 0.9% in 1Q14. The July 2014 index was 119.8, decreased to 119.7 in August, and increased again to 120 in September.
The freight and passenger index are important economic indicators. Although the freight TSI acts as a strong leading indicator of the economy, the passenger TSI is a coincident indicator. Movements of these indexes reflect future trends in the economy and the transportation industry.
In the US airline sector, the top companies include Delta Airlines (DAL), United Continental (UAL), American Airlines (AAL), Southwest Airlines (LUV), and JetBlue Airways (JBLU). These airlines provide passenger and freight transportation services, and investors can gain exposure to these stocks through transportation ETFs such as the iShares Transportation Average ETF (IYT) and the SPDR S&P Transportation ETF (XTN).
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