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

Frontier Group Holdings / Equity Bottom-Up

<ul>
<li>Frontier Airlines, having suffered a highly challenged 2023, is set to see a significant inflection point for pricing and margins in 2Q24.</li>
<li>Management aims to deliver 3-6% PBT margins in 2024 building to 10-14% in 2025, representing a reversion to pre-pandemic levels. Read across for LCCs globally.</li>
<li>We now expect a small positive FCF in 2024, building to &gt;$200m in 2025, which should help inspire confidence in the ULCC's ability to thrive with higher costs.</li>
</ul>


Frontier Airlines, having suffered a highly challenged 2023, is set to see a significant inflection point for pricing and margins in 2Q24.
Management aims to deliver 3-6% PBT margins in 2024 building to 10-14% in 2025, representing a reversion to pre-pandemic levels. Read across for LCCs globally.
We now expect a small positive FCF in 2024, building to &gt;$200m in 2025, which should help inspire confidence in the ULCC's ability to thrive with higher costs.


Frontier Airlines - 2024 Momentum Buys Time to Deliver on 2025 Targets

<ul>
<li>Coverage launch on Frontier Airlines, JetBlue and Spirit Airlines following the rejection of the JetBlue/Spirit deal by the US.</li>
<li>High leverage and above-sector cost inflation put each carrier in a difficult competitive position, driving the need for significant structural earnings improvements to achieve financial sustainability</li>
<li>We are 10% above consensus 2024 EBITDAR for Frontier, narrowly above for JetBlue but 17% below consensus for Spirit.</li>
</ul>


Coverage launch on Frontier Airlines, JetBlue and Spirit Airlines following the rejection of the JetBlue/Spirit deal by the US.
High leverage and above-sector cost inflation put each carrier in a difficult competitive position, driving the need for significant structural earnings improvements to achieve financial sustainability
We are 10% above consensus 2024 EBITDAR for Frontier, narrowly above for JetBlue but 17% below consensus for Spirit.


US Airlines - Second Tier Strives for Financial Sustainability

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/prosus-nv" target="_blank" data-smartkarma-citation="entities:28104:1" rel="noopener">Prosus (PRX NA)</a> selling its <a href="https://www.smartkarma.com/entities/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com (9618 HK)</a> shares was expected. The beginning of an open-ended share repurchase programme of Prosus and <a href="https://www.smartkarma.com/entities/naspers-ltd" target="_blank" data-smartkarma-citation="entities:21085:1" rel="noopener">Naspers (NPN SJ)</a> shares was a welcome surprise.</li>
<li>Dye &amp; Durham has reduced its Offer price for <a href="https://www.smartkarma.com/entities/link-administration-holdings-ltd" target="_blank" data-smartkarma-citation="entities:970:1" rel="noopener">Link Administration (LNK AU)</a> to $4.30/share, down from $5.50/share. It still may get board support.</li>
<li>A 40-45% discount is about the narrowest <a href="https://www.smartkarma.com/entities/bank-of-kyoto" target="_blank" data-smartkarma-citation="entities:5248:1" rel="noopener">Bank of Kyoto (8369 JP)</a> should get to. For that, there is probably 15-20% upside. But like all holdco trades, trade the range.</li>
</ul>



Prosus (PRX NA) selling its JD.com (9618 HK) shares was expected. The beginning of an open-ended share repurchase programme of Prosus and Naspers (NPN SJ) shares was a welcome surprise.
Dye &amp; Durham has reduced its Offer price for Link Administration (LNK AU) to $4.30/share, down from $5.50/share. It still may get board support.
A 40-45% discount is about the narrowest Bank of Kyoto (8369 JP) should get to. For that, there is probably 15-20% upside. But like all holdco trades, trade the range.


Last Week in Event SPACE: Prosus/Naspers, Link Admin, Bank of Kyoto, Tassel, Toshiba

AlphaSituations-Event/Catalyst Driven Research, AlphaSituations

Robert Sassoon

AlphaSituations-Event/Catalyst Driven Research

AlphaSituations

Since its establishment, AlphaSituations has delivered a track record of outperformance with a hit rate of winners of more than 70% of its portfolio of ideas generating annualized average returns of 20%. In January 2022, AlphaSituations was contracted by Water Tower Research, an investor engagement and stakeholder communication platform to provide coverage of Special Situations

<ul>
<li>Frontier Airlines (ULCC US)'s improved terms for <a href="https://www.smartkarma.com/entities/spirit-airlines-inc" target="_blank" data-smartkarma-citation="entities:3389:1" rel="noopener">Spirit Airlines (SAVE US)</a>  still falls well short of the <a href="https://www.smartkarma.com/entities/jetblue-airways-corp" target="_blank" data-smartkarma-citation="entities:1516:1" rel="noopener">Jetblue Airways (JBLU US)</a> offer</li>
<li>ULCC's enhanced downside protection matching JBLU's reverse termination fee and bettering its prepayment proposal is the key swing factor where the regulatory path to approval is challenging for either transaction</li>
<li>Given its vigorous pursuit of SAVE so far, we expect JBLU will quickly respond with another counter offer in order to regain the initiative which should keep arbs interested </li>
</ul>


Frontier Airlines (ULCC US)'s improved terms for Spirit Airlines (SAVE US)  still falls well short of the Jetblue Airways (JBLU US) offer
ULCC's enhanced downside protection matching JBLU's reverse termination fee and bettering its prepayment proposal is the key swing factor where the regulatory path to approval is challenging for either transaction
Given its vigorous pursuit of SAVE so far, we expect JBLU will quickly respond with another counter offer in order to regain the initiative which should keep arbs interested 


<ul>
<li>There is a risk that the ¥7,000/share bid for <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a> gets pulled/lowered in Round 2 because of due diligence, conditionality, market environment, etc.</li>
<li>
<a href="https://www.smartkarma.com/entities/hutchison-telecommunications-hong-kong-holdings-limited" target="_blank" data-smartkarma-citation="entities:141:1" rel="noopener">Hutchison Telecommunications Hong Kong Holdings (215 HK)</a>'s share price was up 33% month to date, on triple the average daily volume. Then promptly sheds 23% on an even larger volume. </li>
<li>Even if one assumes that Softbank, Baba, and Cornerstones won’t sell, there is still 45% of <a href="https://www.smartkarma.com/entities/sensetime-group-inc" target="_blank" data-smartkarma-citation="entities:34319:1" rel="noopener">SenseTime Group (20 HK)</a> of shares out, worth US$11bn, unlocking next week.</li>
</ul>


There is a risk that the ¥7,000/share bid for Toshiba Corp (6502 JP) gets pulled/lowered in Round 2 because of due diligence, conditionality, market environment, etc.

Hutchison Telecommunications Hong Kong Holdings (215 HK)'s share price was up 33% month to date, on triple the average daily volume. Then promptly sheds 23% on an even larger volume. 
Even if one assumes that Softbank, Baba, and Cornerstones won’t sell, there is still 45% of SenseTime Group (20 HK) of shares out, worth US$11bn, unlocking next week.


Last Week in Event SPACE: Toshiba, Hutch Tel, SenseTime, Giordano, DTAC/True, Toyo Const., ResApp

United States

Allegiant Travel Company is a leisure travel company. The Company operates a passenger airline marketed to leisure travelers in small cities.

Hawaiian Holdings, Inc. provides scheduled and charter air transportation of passengers, cargo, and mail.  The Company provides its services among the islands of Hawaii and between Hawaii and several West Coast gateway cities and destinations in the South Pacific.

SkyWest, Inc. operates regional airlines that offer scheduled passenger service to destinations in the United States, Canada, Mexico, and the Caribbean.

Spirit Airlines Inc. is a low-fare airline based in Miramar, Florida. The Airline provides low-cost travel opportunities principally to and from South Florida, the Caribbean and Latin America. Spirit Airlines basic service combines with a range of optional services for additional fees, targets price sensitive leisure travelers and travelers visiting friends and relatives.

Werner Enterprises, Inc. is a transportation company that primarily hauls truckload shipments of general commodities in both interstate and intrastate commerce.  The Company operates in the continental United States, as well as in Canada and Mexico.

Costamare Inc. is a holding company, engages in the provision of containerships chartering. It owns vessels such as new build containerships and second hand vessel. It was founded on April 21, 2008 and is headquartered in Athens, Greece.

Hub Group, Inc. is a full-service transportation provider, offering intermodal, truck brokerage, and logistics services.  The Company arranges for the movement of its customers' freight in containers and trailers over long distances.  Hub Group operates through a nationwide network of hubs, located near significant concentrations of shipping customers and railheads.

Marten Transport, Ltd. is a long-haul truckload carrier providing protective service and time-sensitive transportation.  The Company specializes in protective service transportation of foods and other products requiring temperature-controlled carriage or insulated carriage.  Marten also provides dry freight carriage.

ArcBest Corp is a diversified holding company involved in motor carrier transportation and intermodal transportation operations.  The Company transports a variety of goods around the world.

Star Bulk Carriers Corp. is a holding company, which engages in the marine transportation of dry bulk vessels. It ships iron ore, coal, grain, bauxite, fertilizers, and steel products. The company was founded by Petros Alexandros Pappas on December 13, 2006 and is headquartered in Athens, Greece.

Air France-KLM provides air transportation services. The Company operates airlines and offers travel booking, catering, freight transportation, aircraft maintenance, and pilot training services. Air France-KLM serves customers worldwide.

Vietjet Aviation Joint Stock Company provides air transportation services. The Company offers flight and booking information, in-flight, cargo, and baggage services. Vietjet Aviation operates flights to various destinations in Southeast Asia.

Exchange Income Corp. is a diversified, acquisition-oriented corporation that is focused on opportunities in the industrial products and transportation sectors. The Company is currently operating in aviation and specialty manufacturing.

Air France-KLM offers air transportation services.  The Company operates airlines and offers travel booking, catering, freight transportation, aircraft maintenance, and pilot training services.

Aegean Airlines S.A. is a full service airline. The Company transports passengers to destinations within Greece, and to international destinations in Europe and the Middle East.

PAL Holdings, Inc., through its subsidiaries, engages in the air transportation of passengers and cargo in the Philippines and internationally. As of December 31, 2014, its route network covered 32 points in the Philippines and 35 international destinations. The company was formerly known as Baguio Gold Holdings Corporation and changed its name to PAL Holdings, Inc. in January 2007. The company was incorporated in 1930 and is based in Makati, the Philippines. PAL Holdings, Inc. is a subsidiary of Trustmark Holdings Corporation.

Bangkok Airways Company Limited offers air transportation services. The Company operates flights and airports to various resort destinations in Thailand, Myanmar, Laos, Cambodia, Vietnam, Malaysia, Singapore, China, and Japan.

Air New Zealand Limited operates an airline business that provides international and domestic air passenger and cargo transport services throughout New Zealand and the South West Pacific. The Company also provides engineering and ground handling services.

Wizz Air Holdings Plc provides passenger and cargo air transportation services. The Company offers flight and connection programs in Central and Eastern Europe.

Norwegian Air Shuttle ASA is a low cost airline.  The Company offers air passenger transportation services within Norway and between destinations in Norway and elsewhere in Europe.

JetBlue Airways Corporation provides nonstop passenger flight service through its Airbus A320 aircraft.  The Company's airline is based in New York's John F. Kennedy Airport and currently flies to various destinations in the United States.

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Jetblue Airways (JBLU US)

Frontier Airlines - 2024 Momentum Buys Time to Deliver on 2025 Targets

The US ULCC sector has struggled through 2023, but we highlight that Frontier Airlines can demonstrate it is possible to recover margins and...

Neil Glynn

US Airlines - Second Tier Strives for Financial Sustainability

Deep dive on the quest for financial sustainability of Frontier Airlines, JetBlue and Spirit Airlines, each with a deteriorated competitive...

Neil Glynn

Last Week in Event SPACE: Prosus/Naspers, Link Admin, Bank of Kyoto, Tassel, Toshiba

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

MergerTalk: Over To You, JetBlue!

Given its vigorous pursuit of Spirit Airlines so far, we expect Jetblue will quickly respond to Frontier's improved terms in an effort to regain...

Robert Sassoon

Last Week in Event SPACE: Toshiba, Hutch Tel, SenseTime, Giordano, DTAC/True, Toyo Const., ResApp

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

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