Founder & Managing Director, AIR Control Tower, AIR Control Tower

Neil Glynn

Founder & Managing Director, AIR Control Tower

AIR Control Tower

AIR Control Tower is an independent research and analysis platform. Its mission is to provide impactful insight and analysis across the global airline industry at a company and market level via detailed financial models to aid decision making for key stake holders at a time when risks have seldom, if ever, been higher and the global sector grapples with the imperative of funding de-carbonisation. Unique analysis forecasting global carrier-level earnings/cash flows, and restructuring/de-leveraging prospects, is designed to dynamically assess the health of the industry, predict surprises and identify potential requirements for third party support.

Insights on the global airline industry

Equity Bottom-Up

<ul>
<li>Lufthansa mainline losses in 2024 force management to pursue transformation</li>
<li>​Portfolio management challenges driven by a variety of factors including LH mainline unit costs and pricing at sister companies</li>
<li>Much work to do to turn ITA around, while firm management focus is required at home</li>
</ul>


Lufthansa mainline losses in 2024 force management to pursue transformation
​Portfolio management challenges driven by a variety of factors including LH mainline unit costs and pricing at sister companies
Much work to do to turn ITA around, while firm management focus is required at home


Lufthansa Group – Revisiting Margin and Portfolio Management Challenges

<ul>
<li>Forward looking fare data suggests pricing further weakening for the European flag carriers on long haul in particular.</li>
<li>We expect Lufthansa to miss EBIT guidance by 30% in 2024 while we also cut Air France-KLM 2024 EBIT by 15%.</li>
<li>IAG stands out as most resilient, with BA seemingly outperforming peer pricing on the Transatlantic.</li>
</ul>


Forward looking fare data suggests pricing further weakening for the European flag carriers on long haul in particular.
We expect Lufthansa to miss EBIT guidance by 30% in 2024 while we also cut Air France-KLM 2024 EBIT by 15%.
IAG stands out as most resilient, with BA seemingly outperforming peer pricing on the Transatlantic.


European Airlines - Fare Softening Suggests Elevated Earnings Risk with Self-Help Stories Crucial

<ul>
<li>As Lufthansa nears European Commission approval for its investment in ITA Airways, as widely reported this week, we highlight our analysis of the Italian carrier.</li>
<li>In a strong year for the global industry, heavy 2023 losses prompt questions over ITA's financial sustainability with Lufthansa support.</li>
<li>We highlight that ITA's problems are in revenue generation rather than operational efficiency.</li>
</ul>


As Lufthansa nears European Commission approval for its investment in ITA Airways, as widely reported this week, we highlight our analysis of the Italian carrier.
In a strong year for the global industry, heavy 2023 losses prompt questions over ITA's financial sustainability with Lufthansa support.
We highlight that ITA's problems are in revenue generation rather than operational efficiency.


Lufthansa - ITA Airways Financial Sustainability Questions Without Lufthansa Partnership/Steering

<ul>
<li>We update forecasts for the European airline sector, highlighting it will be difficult for most carriers to grow earnings in 2023.</li>
<li>We publish detailed earnings bridges highlighting the damage to full year earnings from structural damage to 1Q results due to inflationary pressure and the loss of corporate traffic</li>
<li>This also suggests opportunities for the sector to address winter woes to supplement strong summer performances.</li>
</ul>


We update forecasts for the European airline sector, highlighting it will be difficult for most carriers to grow earnings in 2023.
We publish detailed earnings bridges highlighting the damage to full year earnings from structural damage to 1Q results due to inflationary pressure and the loss of corporate traffic
This also suggests opportunities for the sector to address winter woes to supplement strong summer performances.


European Airlines – The Ravages of Increased Earnings Seasonality

<ul>
<li>We refresh estimates on AF-KLM, IAG, Lufthansa following Singapore Airlines's effective profit warning, noting higher fuel prices make margin protection more difficult.</li>
<li>Our 2024 EBIT estimates are 7% ahead of consensus at €2.0bn for AF-KLM, 6% ahead at €3.6bn for IAG and 5% behind at €2.5bn for Lufthansa.</li>
<li>Lufthansa has highest-in-class capacity growth, with its biggest focus on APAC while APAC yield weakness prompts margin management concerns as ground handlers strike.</li>
</ul>


We refresh estimates on AF-KLM, IAG, Lufthansa following Singapore Airlines's effective profit warning, noting higher fuel prices make margin protection more difficult.
Our 2024 EBIT estimates are 7% ahead of consensus at €2.0bn for AF-KLM, 6% ahead at €3.6bn for IAG and 5% behind at €2.5bn for Lufthansa.
Lufthansa has highest-in-class capacity growth, with its biggest focus on APAC while APAC yield weakness prompts margin management concerns as ground handlers strike.


European Airlines - Difficult to Avoid Long Haul Earnings Declines in 2024

Germany

Fraport AG Frankfurt Airport Services Worldwide offers airport services. The Company operates the Frankfurt-Main, the airport in Lima, Peru, and the international terminal in Antalya, Turkey. Fraport also provides services to domestic and international carriers including traffic, facility and terminal management, ground handling, and security.

Sixt SE offers rental and leasing services of cars and trucks such as Mercedes, Ford, VW/Audi, BMW, Opel, Nissan, Fiat, Renault, Saab, and Iveco to business and private customers in Europe.  The Company provides hotel and flight reservations on the Internet.  Sixt also sells used cars and conducts auctions.

Hamburger Hafen und Logistik AG (HHLA) provides services to the port in the European North Range.  The Company's container terminals, transport systems, and logistic services provide a network between overseas port and European hinterland.

Hamburger Hafen und Logistik AG (HHFA GR)

GEA Group Aktiengesellschaft is a farm technology, mechanical equipment, process industry and refrigeration technology company. The Company supplies equipment for the food processing industry. GEA products have industrial, pharmaceutical and chemical applications.

Hochtief AG provides construction and construction related services worldwide. The Company finances, designs, builds, constructs and operates a wide variety of facilities through its five divisions; Airport, Development, Construction Services Americas, Construction Services Asia Pacific, and Construction Services Europe.

KION Group AG provides material handling solutions. The Company offers forklifts, warehouse equipments, and other industrial trucks.

Rational AG manufactures and markets food preparation appliances/processors and kitchen accessories for caterers and canteen kitchens.  The Company's products cook and reheat food.  Rational sells primarily to hotels, restaurants, canteens and caterers in Europe, the United States, and Asia.

Brenntag AG sells and distributes industrial and specialty chemicals.  The Company also develops and prepares specific chemical compounds and offers analysis services.  Brenntag's customers include oil and gas, paint, cosmetic, pharmaceutical, and water treatment companies.

DMG Mori Aktiengesellschaft manufactures and markets machine tools. The Company's products include automatic lathes, milling, turning, laser, and ultrasonic machines.

Jungheinrich AG manufactures battery, diesel, and gas powered merchandise stackers and forklifts.  The products are used in warehouses, production facilities, and for point-of-sales retail storage.  It produces shelving systems, rents forklifts, sells used forklifts, offers financing, and manages forklift fleets.  The Company sells in Europe, the Americas, Africa, and Asia.

Cathay Pacific Airways Limited operates scheduled airline services. The Company also provides related services, including airline catering, aircraft handling, and engineering.

Qantas Airways Limited provides transportation of passengers through two airlines including Qantas (full service carrier) and Jetstar (low cost carrier), operating international, domestic and regional services. The Company also includes Qantas Frequent Flyer and Qantas Freight which generates diverse revenue streams and adds value for customers and investors.

China Southern Airlines Company Limited provides commercial airline services throughout China, Southeast Asia and other parts of the world.  The Company also provides other airline related services including aircraft maintenance and air catering.

China Eastern Airlines Corporation Limited, together with its subsidiaries, operates in the civil aviation industry. It offers passenger, cargo, mail delivery, ground, cargo handling, and other extended transportation services.

Japan Airlines Co. Ltd. provides air transportation services. The Company offers a variety of scheduled  flights and unscheduled flights throughout the world as well as offers air courier services. Japan Airlines also provides tickets, resort hotels, and travel agencies services.

American Airlines Group Inc. operates an airline that provides scheduled passenger, freight, and mail service throughout North America, the Caribbean, Latin America, Europe, and the Pacific.  The Company also provides connecting service throughout the United States, Canada, and the Caribbean.

ANA Holdings Inc provides a variety of air transportation-related services. The Company offers scheduled & unscheduled air passenger services and air courier services. ANA sells aircraft parts and provides travel arrangement & reservation services as well.

Air China Limited provides passenger, cargo, and airline-related services in China.  The Company is primarily based in Beijing and a major hub for domestic and international air transportation.  Air China's airline-related services include aircraft maintenance, repair, overhaul service, ground services, and in-flight catering services.

Korean Air Lines Co., Ltd. operates air transportation services.  The Company's services include passenger and cargo transportation, aircraft maintenance, and air catering.  Korean Air Lines provides domestic and international airline services.

EVA Airways Corp. is an air carrier that transports passengers and cargos. The Company operates primarily in Taiwan and serves international route networks in North America, Asia, Europe, and Australasia.

Deutsche Lufthansa Aktiengesellschaft provides passenger and cargo air transportation services worldwide. The Company offers flight and connection programs in North America, Scandinavia, and Asia. Deutsche Lufthansa also provides travel agency, catering, and aircraft maintenance services.

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Deutsche Lufthansa (LHA GR)

Lufthansa Group – Revisiting Margin and Portfolio Management Challenges

Lufthansa's latest profit warning includes the message that Lufthansa mainline needs a transformation programme. We outline the issues at LH...

Neil Glynn

European Airlines - Fare Softening Suggests Elevated Earnings Risk with Self-Help Stories Crucial

We re-highlight our recent forecast cuts at Air France-KLM and Lufthansa following Air France-KLM's profit warning today, which was due to the...

Neil Glynn

Lufthansa - ITA Airways Financial Sustainability Questions Without Lufthansa Partnership/Steering

In-depth analysis of planned Lufthansa acquisition ITA Airways illustrates a big challenge for the carrier to achieve financial sustainability

Neil Glynn

European Airlines – The Ravages of Increased Earnings Seasonality

Deep dive into winter loss-making for the European airline sector, with structural changes due to corporate traffic loss and inflation. These...

Neil Glynn

European Airlines - Difficult to Avoid Long Haul Earnings Declines in 2024

Deep dive on European flag carrier earnings prospects in 2024 featuring quarterly earnings bridges, in-depth fare and capacity growth analysis.

Neil Glynn

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