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>We publish a detailed update on the APAC airline sector, featuring ANA, Cathay Pacific, JAL, Korean Air, Qantas and Singapore Airlines, addressing cargo yield normalisation, and unit cost inflation.</li>
<li>We see 24% upside to consensus EBITDAR for JAL in FY24 to March 2024, and 24% downside risk at Singapore Airlines based on our detailed analysis and quarterly earnings bridges.</li>
<li>We expect earnings at most carriers to decline in calendar 2024 versus 2023 as the combination of cargo yield normalisation, fuel price pressure, and further capacity restoration prompt margin declines.</li>
</ul>


We publish a detailed update on the APAC airline sector, featuring ANA, Cathay Pacific, JAL, Korean Air, Qantas and Singapore Airlines, addressing cargo yield normalisation, and unit cost inflation.
We see 24% upside to consensus EBITDAR for JAL in FY24 to March 2024, and 24% downside risk at Singapore Airlines based on our detailed analysis and quarterly earnings bridges.
We expect earnings at most carriers to decline in calendar 2024 versus 2023 as the combination of cargo yield normalisation, fuel price pressure, and further capacity restoration prompt margin declines.


APAC Airline Sector – Cost Inflation Management Differentials Crucial as Cargo Yields Normalise

<ul>
<li>With 1H24 results, Qantas followed Singapore Airlines in highlighting fare weakness in international markets and we cut our pre-tax income by 13% to FY24.</li>
<li>We expect FY24 pre-tax income to fall 16% yoy but also expect FY25 to fall another 5%, as our EBITDAR/ASK remains 10% above FY19 levels following 12% in 2H24.</li>
<li>While international markets continue to normalise, Qantas's domestic market structure positions it favourably to continue to invest in customer service and product.</li>
</ul>


With 1H24 results, Qantas followed Singapore Airlines in highlighting fare weakness in international markets and we cut our pre-tax income by 13% to FY24.
We expect FY24 pre-tax income to fall 16% yoy but also expect FY25 to fall another 5%, as our EBITDAR/ASK remains 10% above FY19 levels following 12% in 2H24.
While international markets continue to normalise, Qantas's domestic market structure positions it favourably to continue to invest in customer service and product.


Qantas – Two-Year Earnings Re-Set in Prospect

<ul>
<li>For 1H24 we model EBITDAR of A$2,396m, ahead of Visible Alpha consensus of A$2,273m, which represents an EBITDAR/ASK 35% higher than 1H19.</li>
<li>1H24 will be important to help us better understand "normalised" unit cost levels, with inflation high to date, in part due to a 17% capacity deficit in 2H23.</li>
<li>Qantas has seen comparable inflation to the US majors but considerably higher profitability. This should enable it to invest in product, operational and customer service improvements while protecting margins.</li>
</ul>


For 1H24 we model EBITDAR of A$2,396m, ahead of Visible Alpha consensus of A$2,273m, which represents an EBITDAR/ASK 35% higher than 1H19.
1H24 will be important to help us better understand "normalised" unit cost levels, with inflation high to date, in part due to a 17% capacity deficit in 2H23.
Qantas has seen comparable inflation to the US majors but considerably higher profitability. This should enable it to invest in product, operational and customer service improvements while protecting margins.


Qantas - 1H24 to Provide Evidence of Margin Control

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

<ul>
<li>
<a href="https://www.smartkarma.com/entities/digico-reit" target="_blank" data-smartkarma-citation="entities:44091:1" rel="noopener">DigiCo REIT (DIGICO AU)</a> aims to raise over US$1bn in its Australian IPO.</li>
<li>DigiCo REIT (DREIT) aims to be a diversified owner, operator and developer of data centres, with a global portfolio and broad investment mandate across stabilised, value-add and development opportunities</li>
<li>In this note, we talk about the not-so-positive aspects of the deal.</li>
</ul>



DigiCo REIT (DIGICO AU) aims to raise over US$1bn in its Australian IPO.
DigiCo REIT (DREIT) aims to be a diversified owner, operator and developer of data centres, with a global portfolio and broad investment mandate across stabilised, value-add and development opportunities
In this note, we talk about the not-so-positive aspects of the deal.


DigiCo REIT - The Negatives - Not All Engines Are Firing

Global Mobility/Transport, Equity Long-Short

Mohshin Aziz

<ul>
<li>
<a href="https://www.smartkarma.com/entities/qantas-airways-ltd" target="_blank" data-smartkarma-citation="entities:677:1" rel="noopener">Qantas Airways (QAN AU)</a> (QAN) is enjoying the best time of its life on industry consolidation benefits, demand exceeding supply to many sectors, and flourishing air cargo  </li>
<li>Domestic Australia is an ironclad goldmine, with a benign competitive environment as the archrival is busy restructuring. International sector capacity deployment is picking up, but still deep in underserved territory     </li>
<li>Target price AUD6.58 (+23% UPSIDE), based on 7x CY2024 PE - long-term historical mean. AUD500 million share buyback should provide downside support </li>
</ul>



Qantas Airways (QAN AU) (QAN) is enjoying the best time of its life on industry consolidation benefits, demand exceeding supply to many sectors, and flourishing air cargo  
Domestic Australia is an ironclad goldmine, with a benign competitive environment as the archrival is busy restructuring. International sector capacity deployment is picking up, but still deep in underserved territory     
Target price AUD6.58 (+23% UPSIDE), based on 7x CY2024 PE - long-term historical mean. AUD500 million share buyback should provide downside support 


Qantas Airways (QAN AU | BUY | TP:AU$6.58): Smooth Operator

Australia

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.

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Qantas Airways (QAN AU)

APAC Airline Sector – Cost Inflation Management Differentials Crucial as Cargo Yields Normalise

Deep dive on earnings prospects of the top tier ex-China APAC full service carriers illustrates marked differences in inflation management, and...

Neil Glynn

Qantas – Two-Year Earnings Re-Set in Prospect

A deep dive into Qantas's inflation management and 2H24 / FY25 earnings prospects - we highlight our expectation that FY24 will decline on FY23,...

Neil Glynn

Qantas - 1H24 to Provide Evidence of Margin Control

We outline Qantas's ability to control profitability at record FY23 levels on the last leg of capacity restoration. We compare its inflation to the...

Neil Glynn

DigiCo REIT - The Negatives - Not All Engines Are Firing

DigiCo REIT (DIGICO AU) aims to raise over US$1bn in its Australian IPO. In this note, we talk about the not-so-positive aspects of the deal.

Sumeet Singh