Table of Contents
Investment thesis .............................................................................. 4
How to play the recovery..........................................................................................................4
Share price performance...........................................................................................................7
Valuation ............................................................................................ 8
Is there upside from here?........................................................................................................8
We value our airlines using EV/EBITDAR multiples...................................................................9
Industry update ............................................................................... 12
When will network airlines recover? .......................................................................................12
Recent traffic and cargo trends...............................................................................................13
Will low-cost airlines maintain their resilience?.......................................................................13
Other risks to demand for air travel ........................................................................................14
Industry competitive analysis..................................................................................................15
Air France-KLM - Sell....................................................................... 20
Outlook ..................................................................................................................................20
Valuation ................................................................................................................................20
Risks ......................................................................................................................................20
Cost structure remains high....................................................................................................22
easyJet threat intensifies ........................................................................................................23
Alliance strategy on track........................................................................................................24
Financial forecasts ..................................................................................................................25
British Airways – Hold..................................................................... 28
Outlook ..................................................................................................................................28
Valuation ................................................................................................................................28
Risks ......................................................................................................................................28
CEO Walsh making structural changes to the cost base ........................................................30
A play on US recovery.............................................................................................................31
Pension deficit to become less of an issue.............................................................................32
Iberia deal unlikely in the short term .......................................................................................33
American Airlines – ATI decision in November .......................................................................34
Financial forecasts ..................................................................................................................36
Lufthansa – Buy ............................................................................... 37
Outlook ..................................................................................................................................37
Valuation ................................................................................................................................37
Risks ......................................................................................................................................37
Lufthansa continues to lead the pack .....................................................................................39
Cost cutting – structural or permanent?..................................................................................40
Consolidation – recovery could drive margins on low cost base ............................................41
Financial forecasts ..................................................................................................................44
easyJet – Buy ................................................................................... 46
Outlook ..................................................................................................................................46
Valuation ................................................................................................................................46
Risks ......................................................................................................................................46
Business travelers driving rise in yields...................................................................................48
Sir Stelios makes peace with his boardroom colleagues ........................................................49
British Airways losing the battle at Gatwick............................................................................50
easyJet ROCE could match that of Ryanair ............................................................................51
Financial forecasts ..................................................................................................................51
Ryanair – Hold.................................................................................. 53
Outlook ..................................................................................................................................53
Valuation ................................................................................................................................53
Table of Contents (Cont'd)
Risks ......................................................................................................................................53
Can Ryanair recover its ROCE?...............................................................................................55
Dissecting the Ryanair business model ..................................................................................55
Target to double profits and passengers by FY11-12e............................................................57
Financial forecasts ..................................................................................................................58