The aviation sector has been flying in turbulent skies recently, thanks to heightened oil price volatility. With Brent crude oil prices slipping below $70 per barrel on March 6, followed by a sharp rebound on March 7, airline stocks and sector-focused ETFs have been on a rollercoaster ride. Investors are keeping a close watch on energy costs, a key component of airline operations, and how they impact the broader aviation market.

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Three Aviation-Focused ETFs to Watch

U.S. Global Jets ETF JETS – Down 1.05% at the time of publication Friday.

The fund is one of the most popular aviation ETFs, offering exposure to major airlines, aircraft manufacturers, and airport operators. The fund holds stocks from global carriers such as Delta Air Lines DAL, American Airlines AAL, and Southwest Airlines LUV. While JETS has struggled amid oil price fluctuations, its diversified approach provides investors with broad exposure to the airline industry.

iShares Transportation Average ETF IYT – Up 0.66% at the time of publication Friday.

While not solely focused on airlines, the iShares Transportation Average ETF includes a significant allocation to aviation stocks alongside railroads, trucking, and logistics firms. Given the importance of fuel costs across the transportation sector, IYT's performance is closely linked to oil price movements, making it an interesting choice for investors looking for a broader transportation play.

SPDR S&P Transportation ETF XTN – Up 0.08% at the time of publication Friday.

This fund tracks an equal-weighted index of U.S. transportation stocks, including airlines, railroads, and shipping companies. This ETF offers a more balanced approach compared to JETS, which is heavily weighted toward major airlines. As a result, XTN may offer a smoother ride for investors during periods of oil price volatility.

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What's Driving Oil Prices?

Oil prices have been gyrating lately, largely due to geopolitical and economic factors.

U.S. airline stocks tumbled again on Tuesday, hitting their lowest levels since late last year following data indicating economic concerns. United Airlines UAL, which has the highest exposure to China among U.S. airlines, fell about 6%, along with Delta Air Lines. American Airlines dropped close to 4%, while domestic-focused carriers such as JetBlue Airways lost nearly 6% on Tuesday.

Airlines, particularly full-service carriers with extensive international networks, had been performing well due to strong demand and moderating domestic flight growth. However, some analysts now anticipate potential demand impacts, particularly for price-sensitive customers ahead of the crucial spring travel season, according to CNBC. Adding to the concerns, U.S. consumer spending fell in January for the first time in nearly two years, as per the U.S. Commerce Department.

However, by Friday, oil futures rebounded as reports emerged that the U.S. planned to refill its Strategic Petroleum Reserve (SPR) to full capacity, tightening global supply, according to BNN Bloomberg.

Despite this temporary bounce, crude prices remained weak for the week, with the U.S. benchmark poised for a seventh consecutive weekly decline.

Aviation Stocks React

The S&P 500 Airlines Industry Index felt the impact of these price swings, dipping around 5% by midday on Friday, while the Nasdaq Global Smart Airlines Index dipped around 1.7%.

Higher oil prices typically translate to increased fuel costs for airlines, squeezing margins and impacting profitability. However, despite the weakness in oil prices this week, ETFs exposed to the aviation sector have remained under pressure, signaling the other factors at play that weighed heavily on the stocks. If oil prices remain weak, it can boost airline earnings, making aviation ETFs an interesting play for investors looking to capitalize on these trends.

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