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>Latest fare data suggests an incrementally more concerning trend for Ryanair pricing from June.</li>
<li>Concerns over pricing continue to increase in Europe, following Lufthansa's profit warning last week.</li>
<li>We cut our FY25 net income by 9% to €2,289m albeit remain above consensus of €2,170m.</li>
</ul>


Latest fare data suggests an incrementally more concerning trend for Ryanair pricing from June.
Concerns over pricing continue to increase in Europe, following Lufthansa's profit warning last week.
We cut our FY25 net income by 9% to €2,289m albeit remain above consensus of €2,170m.


Ryanair - Pricing Appears to Be Softening; Re-Setting Profitability Expectations

<ul>
<li>Summer pricing data suggests growth yoy for European short haul carriers.</li>
<li>This prompts us to raise our easyJet PBT forecast 11% to £676m for FY24.</li>
<li>We continue to see underperforming Wizz Air as the carrier with greatest opportunity to improve perception towards it by executing well in summer 2024.</li>
</ul>


Summer pricing data suggests growth yoy for European short haul carriers.
This prompts us to raise our easyJet PBT forecast 11% to £676m for FY24.
We continue to see underperforming Wizz Air as the carrier with greatest opportunity to improve perception towards it by executing well in summer 2024.


European Airlines – Increasing Confidence in LCC Summer Pricing and Profitability

<ul>
<li>​Early three-month and six-month fare levels largely remain above prior year for the full service carriers (FSCs) and low cost carriers (LCCs)</li>
<li>EasyJet’s 2024 PBT can reach £600m, Ryanair FY25 net income can near-€2.5bn following €2.0bn in FY24, while Wizz Air can exceed €500m net income in FY25.</li>
<li>Wizz has the strongest potential to demonstrate its ability to improve EBITDAR/ASK by managing capacity, which may provide insight into future prospects as operations normalize/developmental routes mature.</li>
</ul>


​Early three-month and six-month fare levels largely remain above prior year for the full service carriers (FSCs) and low cost carriers (LCCs)
EasyJet’s 2024 PBT can reach £600m, Ryanair FY25 net income can near-€2.5bn following €2.0bn in FY24, while Wizz Air can exceed €500m net income in FY25.
Wizz has the strongest potential to demonstrate its ability to improve EBITDAR/ASK by managing capacity, which may provide insight into future prospects as operations normalize/developmental routes mature.


European Airlines - LCCs Unlikely to Pass Through Fuel Tailwinds in 2024

Controladora Vuela Cia De-A / Equity Bottom-Up

<ul>
<li>Mexico's Volaris has announced its 1Q24 and FY24 capacity is likely to be down 16-18% yoy due to GTF engine inspections grounding aircraft.</li>
<li>However, on this reduced capacity, management anticipates a 31-33% EBITDAR margin, up from 26% in 2023, helped by fuel costs down c.9%. We model $1bn EBITDAR in 2024 (2023 $840m).</li>
<li>This dynamic has read across for many short/medium haul markets around the world has capacity constraints are likely to drive up pricing/earnings for affected carriers and also competitors.</li>
</ul>


Mexico's Volaris has announced its 1Q24 and FY24 capacity is likely to be down 16-18% yoy due to GTF engine inspections grounding aircraft.
However, on this reduced capacity, management anticipates a 31-33% EBITDAR margin, up from 26% in 2023, helped by fuel costs down c.9%. We model $1bn EBITDAR in 2024 (2023 $840m).
This dynamic has read across for many short/medium haul markets around the world has capacity constraints are likely to drive up pricing/earnings for affected carriers and also competitors.


Global Airlines: Mexico's Volaris Shows GTF Groundings Can Drive Higher Pricing

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<p>On 9 September, in a <strong>defensive move</strong>, <a href="https://www.smartkarma.com/entities/easyjet-plc" target="_blank" data-smartkarma-citation="entities:21929:1" rel="noopener">easyJet PLC (EZJ LN)</a> first rejected a takeover approach from <a href="https://www.smartkarma.com/entities/wizz-air-holdings-plc" target="_blank" data-smartkarma-citation="entities:22208:1" rel="noopener">Wizz Air Holdings (WIZZ LN)</a> that would have created a low-cost airline to rival Ryanair, then launched a fully underwritten £1.2 bn rights issue to fly solo in its struggle to recover from the pandemic. The share price of easyJet went into a tailspin.</p>
<p>EasyJet said the all-share unsolicited approach fundamentally undervalued its business and added the potential bidder had since said it was no longer interested in a deal. It added that the approach was highly conditional and with a low premium, which made it very uncertain in terms of the deliverability.</p>
<p>EasyJet explained that the proceeds from the capital raise "will protect and strengthen the long-term position in the European aviation sector". In addition, it hopes the funds will "facilitate and accelerate the group's recovery from the impact of the Covid-19 pandemic, by providing resistance to risks, should the pandemic continue to slow or delay the recovery of passenger volumes during the next 12 months". EasyJet believes that the expansion will provide "the necessary flexibility to take advantage of the strategic and long-term investment opportunities that are expected to arise, as the European aviation market emerges from the pandemic, in particular as the big airlines restructure their short-haul operations".</p>
<div>
<p><strong>47 rights are needed to subscribe for 31 new shares</strong>. The issue price is <strong>410p/new share</strong> and represents a 48.0% discount to the closing price prior to announcement (789p) and a <strong>35.8% discount to TERP</strong>. While the market value of the old shares exceeds the issue price, the right to buy the new shares is potentially valuable. This is a very large amount by any measure, equivalent to an IPO. Shareholders are enduring a 40% dilution (and according to Dow Jones, Stellios, the main shareholder is not likely to participate (potentially heavily diluting his stake from 25.3% currently to around 15%). Nevertheless one would expect most investment funds and large holders to take up their rights, otherwise they would be leaving a lot of money on the table.</p>
<div>
<p>This is akin to a <strong>placing by market volume</strong>. I am assuming that many retail shareholders will not take their rights, and the underwriters (and hedge funds) may be covering their short positions after the end of the rights trading period through to the beginning of trading of the new shares. Arbs will be buying the rights and short selling the shares.</p>
</div>
</div>
<div>
<div>
<div>
<p>My <strong>fair value estimate</strong> (adjusted for the rights issue) is <strong>728p</strong>, which represents <strong>5.3x EV/2023e EBITDA</strong>.</p>
</div>
</div>
</div>

On 9 September, in a defensive move, easyJet PLC (EZJ LN) first rejected a takeover approach from Wizz Air Holdings (WIZZ LN) that would have created a low-cost airline to rival Ryanair, then launched a fully underwritten £1.2 bn rights issue to fly solo in its struggle to recover from the pandemic. The share price of easyJet went into a tailspin.
EasyJet said the all-share unsolicited approach fundamentally undervalued its business and added the potential bidder had since said it was no longer interested in a deal. It added that the approach was highly conditional and with a low premium, which made it very uncertain in terms of the deliverability.
EasyJet explained that the proceeds from the capital raise "will protect and strengthen the long-term position in the European aviation sector". In addition, it hopes the funds will "facilitate and accelerate the group's recovery from the impact of the Covid-19 pandemic, by providing resistance to risks, should the pandemic continue to slow or delay the recovery of passenger volumes during the next 12 months". EasyJet believes that the expansion will provide "the necessary flexibility to take advantage of the strategic and long-term investment opportunities that are expected to arise, as the European aviation market emerges from the pandemic, in particular as the big airlines restructure their short-haul operations".

47 rights are needed to subscribe for 31 new shares. The issue price is 410p/new share and represents a 48.0% discount to the closing price prior to announcement (789p) and a 35.8% discount to TERP. While the market value of the old shares exceeds the issue price, the right to buy the new shares is potentially valuable. This is a very large amount by any measure, equivalent to an IPO. Shareholders are enduring a 40% dilution (and according to Dow Jones, Stellios, the main shareholder is not likely to participate (potentially heavily diluting his stake from 25.3% currently to around 15%). Nevertheless one would expect most investment funds and large holders to take up their rights, otherwise they would be leaving a lot of money on the table.

This is akin to a placing by market volume. I am assuming that many retail shareholders will not take their rights, and the underwriters (and hedge funds) may be covering their short positions after the end of the rights trading period through to the beginning of trading of the new shares. Arbs will be buying the rights and short selling the shares.





My fair value estimate (adjusted for the rights issue) is 728p, which represents 5.3x EV/2023e EBITDA.




EasyJet to Launch £1.2 Bn Rights Issue After Rejecting Hostile Takeover Approach

Switzerland

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

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Wizz Air Holdings (WIZZ LN)

Ryanair - Pricing Appears to Be Softening; Re-Setting Profitability Expectations

Reflection of latest fare data in our Ryanair forecasts, with market pricing apparently softening further from June. We cut FY25 net income by 9%...

Neil Glynn

European Airlines – Increasing Confidence in LCC Summer Pricing and Profitability

Deep dive on European low cost carrier fare developments into summer 2024 and ramifications for profitability development via detailed earnings...

Neil Glynn

European Airlines - LCCs Unlikely to Pass Through Fuel Tailwinds in 2024

Deep dive on early 2024 pricing developments and the prospect of the major European low cost carriers retaining fuel price tailwinds in 2024

Neil Glynn

Global Airlines: Mexico's Volaris Shows GTF Groundings Can Drive Higher Pricing

Valuable read across from Mexico's Volaris for all airlines impacted by GTF engine inspections - as well as their closest competitors - as capacity...

Neil Glynn

EasyJet to Launch £1.2 Bn Rights Issue After Rejecting Hostile Takeover Approach

Fully underwritten 31 for 47 at 35.8% discount to TERP. Gross proceeds of c. £1.2 bn, a placing by market volume, 40% dilution. Potential arbitrage...

Jesus Rodriguez Aguilar

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