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>Given events in the Middle East and associated risks for oil prices, we publish a quick guide to the 2024 earnings sensitivity to fuel price increases for the European airlines.</li>
<li>Rising fuel prices pose starkest risk to Lufthansa earnings, and it has just profit warned due to strike costs, which leave it needing a record 2H to meet guidance.</li>
<li>Ryanair is comfortably most insulated given margin and balance sheet strength.</li>
</ul>


Given events in the Middle East and associated risks for oil prices, we publish a quick guide to the 2024 earnings sensitivity to fuel price increases for the European airlines.
Rising fuel prices pose starkest risk to Lufthansa earnings, and it has just profit warned due to strike costs, which leave it needing a record 2H to meet guidance.
Ryanair is comfortably most insulated given margin and balance sheet strength.


European Airlines - Assessing Fuel Price Risk to Earnings

<ul>
<li>We forecast €2.6bn Adjusted EBIT in 2024, below management guidance of €2.7bn, given concerns about margin management as capacity increases 12% yoy.</li>
<li>Detailed analysis of the margin gaps and key drivers of gaps at each of Lufthansa's airlines illustrates remedial work required with new perspective.</li>
<li>Bringing each portfolio company towards the Group Adjusted EBIT margin target of &gt;8% would represent the CEO's finest achievement (apart from helping save the company through COVID).</li>
</ul>


We forecast €2.6bn Adjusted EBIT in 2024, below management guidance of €2.7bn, given concerns about margin management as capacity increases 12% yoy.
Detailed analysis of the margin gaps and key drivers of gaps at each of Lufthansa's airlines illustrates remedial work required with new perspective.
Bringing each portfolio company towards the Group Adjusted EBIT margin target of &gt;8% would represent the CEO's finest achievement (apart from helping save the company through COVID).


Lufthansa – Portfolio Carrier Catch up Requirements Analysed

Pan-Asia Index Flows & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Pan-Asia Index Flows & Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Event-Driven

The European Benchmark Indices (BMI) of the STOXX Index family are reviewed on a quarterly basis in March, June, September and December. In this insight, we take a look at the potential adds and deletes for the next review which will take place in December 2021 for the STOXX Europe 600 Index and the EURO STOXX Index. The STOXX Europe 600 Index is a benchmark index with a fixed number of 600 components representing large, mid and small capitalization companies across 17 countries of the European region. The EURO STOXX Index is a subset of the STOXX Europe 600 Index and is also the parent index for one of the most widely tracked blue-chip indices in the Eurozone ("EURO STOXX 50"), which is rebalanced once a year in September. <div>More below the fold.</div>

The European Benchmark Indices (BMI) of the STOXX Index family are reviewed on a quarterly basis in March, June, September and December. In this insight, we take a look at the potential adds and deletes for the next review which will take place in December 2021 for the STOXX Europe 600 Index and the EURO STOXX Index. The STOXX Europe 600 Index is a benchmark index with a fixed number of 600 components representing large, mid and small capitalization companies across 17 countries of the European region. The EURO STOXX Index is a subset of the STOXX Europe 600 Index and is also the parent index for one of the most widely tracked blue-chip indices in the Eurozone ("EURO STOXX 50"), which is rebalanced once a year in September. More below the fold.

STOXX Europe Indices: Quiddity Leaderboard for December 2021 Rebalance

International Consolidated Airlines Group / Equity Bottom-Up

International Consolidated Airlines Group

<ul>
<li>Following highly challenged 1H24 performances from Air France-KLM and Lufthansa, but strength from IAG, we publish a deep dive on the drivers of divergent performances.</li>
<li>We raise our forecasts at IAG but make heavy cuts at Air France-KLM and Lufthansa, with concerns over their ability to improve over pre-pandemic performances.</li>
<li>This critical juncture, as each carrier implements some type of transformation plan, and carriers around the world see earnings re-set downwards, requires strong governance for expanding portfolios of airlines.</li>
</ul>


Following highly challenged 1H24 performances from Air France-KLM and Lufthansa, but strength from IAG, we publish a deep dive on the drivers of divergent performances.
We raise our forecasts at IAG but make heavy cuts at Air France-KLM and Lufthansa, with concerns over their ability to improve over pre-pandemic performances.
This critical juncture, as each carrier implements some type of transformation plan, and carriers around the world see earnings re-set downwards, requires strong governance for expanding portfolios of airlines.


European Airlines – Moving Parts Within Group Performances Illustrate Structural Requirements

HK/China Equity Long-Short

Osbert Tang, CFA

Cathay Pacific Airways / Equity Bottom-Up

<ul>
<li>With more foreign countries being granted visa-free visits to China, <a href="https://www.smartkarma.com/entities/cathay-pacific-airways-ltd" target="_blank" data-smartkarma-citation="entities:243:1" rel="noopener">Cathay Pacific Airways (293 HK)</a> will benefit from more transfer traffic via Hong Kong.</li>
<li>Recovery is decent with passenger traffic rising 37.5% in 5M24. CX's capacity already returned to 80% of pre-pandemic in 2Q24, and this will reach 100% in 1Q25. </li>
<li>YTD, CX is still a laggard relative to many global airlines. Its P/B valuation is not stretched at 0.8x, given ROE of 11% over the next 3 years.  </li>
</ul>


With more foreign countries being granted visa-free visits to China, Cathay Pacific Airways (293 HK) will benefit from more transfer traffic via Hong Kong.
Recovery is decent with passenger traffic rising 37.5% in 5M24. CX's capacity already returned to 80% of pre-pandemic in 2Q24, and this will reach 100% in 1Q25. 
YTD, CX is still a laggard relative to many global airlines. Its P/B valuation is not stretched at 0.8x, given ROE of 11% over the next 3 years.  


Cathay Pacific (293 HK): Multiple Positive Developments

Germany

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)

European Airlines - Assessing Fuel Price Risk to Earnings

Detailed historical and forward looking analysis on the European airline sector's ability to manage fuel price headwinds/volatility.

Neil Glynn

Lufthansa – Portfolio Carrier Catch up Requirements Analysed

Deep dive into the margin gaps at each portfolio company versus the Group target of Adjusted EBIT margin of >8%, to illustrate the remedial work...

Neil Glynn

STOXX Europe Indices: Quiddity Leaderboard for December 2021 Rebalance

A look at the potential adds and deletes for the December 2021 index review for the STOXX Europe 600 Index and the EURO STOXX Index.

Janaghan Jeyakumar, CFA

European Airlines – Moving Parts Within Group Performances Illustrate Structural Requirements

Deep dive into the divergent economics of each airline within the expanding European network carrier groups AF-KLM, IAG, Lufthansa to illustrate...

Neil Glynn

Cathay Pacific (293 HK): Multiple Positive Developments

As more countries gain visa-free access to China, CX will benefit from increased transfer traffic. CX's recovery is on track with passenger...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

European Airlines - Assessing Fuel Price Risk to Earnings

Detailed historical and forward looking analysis on the European airline sector's ability to manage fuel price headwinds/volatility.

Neil Glynn

Lufthansa – Portfolio Carrier Catch up Requirements Analysed

Deep dive into the margin gaps at each portfolio company versus the Group target of Adjusted EBIT margin of >8%, to illustrate the remedial work...

Neil Glynn

STOXX Europe Indices: Quiddity Leaderboard for December 2021 Rebalance

A look at the potential adds and deletes for the December 2021 index review for the STOXX Europe 600 Index and the EURO STOXX Index.

Janaghan Jeyakumar, CFA

European Airlines – Moving Parts Within Group Performances Illustrate Structural Requirements

Deep dive into the divergent economics of each airline within the expanding European network carrier groups AF-KLM, IAG, Lufthansa to illustrate...

Neil Glynn

Cathay Pacific (293 HK): Multiple Positive Developments

​As more countries gain visa-free access to China, CX will benefit from increased transfer traffic. CX's recovery is on track with passenger...

Osbert Tang, CFA

As more countries gain visa-free access to China, CX will benefit from increased transfer traffic. CX's recovery is on track with passenger...