美国航空业总结：ALK降级JBLU评级上调

1、North America Corporate Research28 October 2019US Airlines3Q Wrap; ALK downgraded, JBLU upgraded; sentiment improvingSentiment was already on the mend, in our view, but earnings season provided anothershot in the arm: AAL came out swinging, JBLU offered RASM reassurances, LUV wasnt shy about its cos

2、t challenges, and SAVE guided up, to name a few. Most importantly, domestic capacity sentiment (since outcomes remain far from certain) improved given further MAX delays and plans for a more tempered return to service than many had feared. But economic uncertainty still remains, so weve also updated

3、 our recessionary analysis; it looks OK, but not as strong as in 2016. Turning to ratings, ALKs surge towards our $76 target has left limited forecasted upside potential, which nudges our rating from Overweight to Neutral. Meanwhile, JBLU still far from a sell-side favorite is now expected (by us) t

4、o limp across the $2.50 earnings line in 2020. Even when coupled with our second lowest target multiple, upside potential to our JBLU target price of $24 exceeds 25%, lifting our rating to Overweight.ALK downgraded to Neutral We have more confidence in ALKs ability to expand margins in 2020 than we

5、do JetBlues ability to exceed $2.50 in earnings. We have confidence in ability to maintain positive RASM we JetBlues. Forecasted execution risk appears lower at given JBLUs fleet transition and transatlantic ambitions. But it doesnt look like were alone with these views, as evidenced by ALKs 2.5x P/

6、E premium to JetBlue, In fact, ALK shares have surged to the second-highest valuation in our coverage universe, even on our consensus-topping forecasts. We believe the time to take profits has arrived, as evidenced by the paucity of forecasted upside potential to our $76target.JBLU upgraded to Overw

7、eight 2.3% TRASM, -0.7% ex-fuel CASM $2.10/gallon fuel are the salient metrics that achieve our improved $2.67 forecast for 2020, limping into managements recently-affirmed $2.50$3.00 range where reside (consensus remains a stubborn $2.38). Of the aforementioned drivers, we have the most confidence

8、in the CASM which is a sharp reversal from how weve viewed the company over the years. And JBLU is far an analyst favorite, as evidenced by the highest % of “sells” in our universe (and the second-fewest “buys” SAVE). Best all, our second lowest target P/E (8x, AAL is lower) implies attractive upsid

9、e potential, in our view, and suggests investors are being adequately compensated RASM uncertainty, execution risk, and a network prone to chronic meteorologicaldisruption.Airlines & Aircraft Leasing/Equity Jamie Baker AC(1-212) 622-6713 HYPERLINK mailto:jamie.baker jamie.bakerBloomberg JPMA BAKER A

10、bdul Tambal, CFA(1-212) 622-0302 HYPERLINK mailto:abdul.tambal abdul.tambalJ.P. Morgan Securities LLCEquity Ratings and Price TargetsCompanyTickerMkt Cap ($ mn)Price ($) Rati Curng PrevCur Price TargetEndDateEnd DateAlaska Air Group, Inc.ALK US8,879.4871.57NOW76.00Dec-2079.00n/cAmerican AirlinesAAL

11、US13,652.4930.86OWn/c43.00Dec-2040.00n/cDelta Air Lines, Inc.DAL US35,380.8054.60OWn/c78.00Dec-20n/cn/cJetBlue Airways Corp.JBLU US5,551.0818.76OWN24.00Dec-2023.00n/cSouthwest Airlines Co.LUV US30,299.1656.74UWn/c54.00Dec-2058.00n/cSpirit AirlinesSAVE US2,599.9137.93OWn/c51.00Dec-20n/cn/cUnited Airl

12、ines Holdings IncUAL US23,523.9991.64OWn/c123.00Dec-20122.00n/cSource: Company data, Bloomberg, J.P. Morgan estimates. n/c = no change. All prices as of 25 Oct 19.See page 32 for analyst certification and important disclosures.J.P. Morgan does and seeks to do business with companies covered in its r

13、esearch reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. HYPERLINK / Capacity sentiment appears better MAX

14、-related capacity concerns drove the majority of investor pushback since mid-summer, in our view. And capacity outcomes remain highly fluid, given uncertainty around MAX RTS (return to service) and the that published schedules become analytically unreliable after about the month mark. Discounters ha

15、vent even published summer plans yet, so theres nothing to analyze there in the first place. But we do know the following: Southwest has assured investors that double-digit growth is out of the question, American surprised many with a 5% consolidated system guide (which is heavily MAX-centric), Alas

16、ka has indicated 3.5% in 2020 (and a more measured long-term CAGR, down one-time 8% ambitions), and all three U.S. operators have indicated gradual phase-ins, with a healthy anticipated lag re-certification and first revenue flight (i.e. 2 months for LUV). Domestic capacity still remains an overhang

17、, in our opinion, but one that has recently pivoted causing significant pessimism to cautiousoptimism.A word American We pleased that AAL exhibited renewed vigor on its earnings call we can envision management standing instead sitting, they sounded that much better to us pivoting the spotlight towar

18、ds deleveraging improving cash flow in coming years. “$2.5 billion in 2020 FCF at flat earnings” made for an attractive if curious headline, in our view. We cant get there, at least not comfortably. Specifically, Americans forecast includes roughly $1.1 billion of anticipated sale-leaseback proceeds

19、, which we exclude and would strenuously hope other airlines do as well. good news is that were forecasting 2020 EPS of $5.99, so clearly something better than flat. But our FCF estimate stops slightly short of $2 billion, though rises to $3.3 billion in2021.Nobodys asking here, but they are asking

20、in Europe. Thoughts on flygskam The topic of flight shaming in response to increasing environmental angst has become part of the North American investment narrative, but it is garnering significant attention amongst Europeans. In our minds, its more a question of “when” rather than “if” the topic ga

21、ins traction. Granted, its decades since industry witnessed any meaningful disruption, with the internet being the last such Uber-like structurally disruptive calamity (video conferencing was a ripple, in our view). But flygskam may prove challenging. If one assumes that short-haul markets are at gr

22、eater risk, wed point out that 19% of LUV ASMs and 42% its departures are in 500 mile markets, where automotive substitution might prove realistic except it doesnt appear that driving Austin to Dallas would be eco-friendly than And, according to our analysis, theres a meaningful dearth of O&D market

23、s in the U.S. where sailboat-alternatives currently exist. present, our models are unadjusted, but we question how many earnings seasons can pass before this topic receivesattention.We it prudent to dust off recessionary analysis Our deliberately- dire analysis makes several assumptions: a) revenue

24、contraction is consistent with prior downturns, b) the recession lasts four consecutive quarters, c) fuel prices do not moderate, and d) no efforts are taken to bolster profitability (an extreme scenario). What this ignores is a) revenue trends have grown more resilient given contribution loyalty an

25、d ancillary fees, b) most recessions dont last a year, c) we actually believe prices would fall, and d) theres little chance of management doing nothing to combat adownturn.The good news is we continue to believe in a profitable recession However, in contrast to our 2016 analysis which was conducted

26、 at fuel prices and a higher starting point margins American is forecasted to lose money and other airlines (like JBLU & SAVE) only marginally achieve profitability. We calculate operating margins ranging between flat at AAL and +6 to 7% for DAL and LUV. On an EPS basis, this equates to a $1.23 loss

27、 AAL, $1.17 profit for UAL, $1.89 profit for Southwest, and $3.08 profit for DAL. We remain of the that final recessionary profits would potentially prove better than our forecasts. But we our stress-test begins with an “its not different this time” thesis, from where we then work north with mitigat

28、ing assumptions (i.e. cheaper capacity cuts, layoffs,etc.).Tis the season remains a seasonality to airline investing. A strategy of buying equities at their autumnal lows (Sep/Oct) and holding them until their vernal highs (Apr/May) has yielded significant potential gains relative to the S&P 500 ove

29、r the past years. But thats shorthand “buy low, sell high.” We also look at the sub-optimal trade; buying at the high and selling at the low. For Delta, this strategy has an average maximum relative gain of 39%, and an average maximum relative loss of -11%. So, using only the calendar, and assuming

30、and entry points, the seasonal DAL trade would have resulting in a somewhere between -11% and +39%; not too shabby, in our opinion. For United, its been between -11% and +50%. For 2019, the trade appears to a reasonable start, given autumnal already appear to have been achieved several weeks ago (ba

31、rring catastrophe between now and October 31st). For example, AAL, & JBLU have already rallied around 15% relative to the S&P 500 their respective lows. Seasonality should be the sole basis investing in airlines, in our view, but we felt we would be remiss if we didnt at least remind investors of th

32、is time-tested analysis. Its no D3030, but we think its prettycompelling.3SummaryJPM Equity Price Targets/RatingsTable 1: Our December 2020 price target revisions are slight, but we changed two ratingsJPM Equity Price Targets/RatingsRatingsAirlineNewOld JPM New PT JPM Old PT Current Price PT % JPM %

33、AAL-O$43.00$40.00$30.868%39%ALKNO$76.00$79.00$71.57-4%6%DAL-O$78.00$78.00$54.600%43%JBLUON$24.00$23.00$18.764%28%LUV-U$54.00$58.00$56.74-7%-5%SAVE-O$51.00$51.00$37.930%34%UAL-O$123.00$122.00$91.641%34%Source: Bloomberg, J.P. Morgan estimates.Table 2: Our 2020 earnings estimates are above consensus,

34、except for Southwest2020eNewOld% changeConsens usAAL$5.99$5.1217%$5.27ALK$7.50$7.78-4%$6.95DAL$7.45$7.460%$7.07JBLU$2.67$2.3414%$2.39LUV$4.70$5.20-10%$5.03SAVE$5.30$4.957%$4.82UAL$13.19$13.001%$12.67Source: Bloomberg, J.P. Morgan estimates.Table 3: and the same is true of our 2021 earnings estimates

35、2021eNewOld% changeConsens usAAL$6.45$6.096%$5.94ALK$8.05$8.34-4%$7.58DAL$8.25$8.201%$7.69JBLU$3.00$2.855%$2.76LUV$5.40$5.85-8%$5.65SAVE$5.70$5.690%$5.59UAL$14.50$14.371%$14.39Source: Bloomberg, J.P. Morgan estimates.Sentiment and interest appear to be improvingMore inbound calls and emails. A handf

36、ul of requests for industry primers. An appreciable decline in outright hostility towards airline stocks, in our view. While it may not be much, the current environment stands in stark but welcome contrast to the paucity of investor interactions we were conducting just a month ago (let alone during

37、the very quiet summer).Seasonality may be part of it (keep reading). Declining-though-still-significant economic pessimism is believed to be contributing. But we believe the core catalyst behind growing investor interest (and recent share price appreciation) is waning fear of a domestic capacity tsu

38、nami once the 737 MAX returns to the skies as well as 4Q guides that were mostly cheered by the market during the now-completed earnings seasons.Figure 1: SAVE has the fewest “buy” ratings, but JetBlue is a close 2nd and has more “sells”100%90%80%70%60%50%40%30%20%10%0%ACUALDALALKAALLUVJBLUSAVESourc

39、e: Bloomberg.Sells Holds BuysWe still dont have succinct capacity answersTo the chagrin of investors and analysts alike, accurate capacity forecasts can only be made in the immediate-to-near term (so, the current quarter, give or take). Discounters commonly file schedules only on a 4-6 month forward

40、 basis, and those airlines that do publish up to twelve months tend to materially over-schedule, soak up bookings as best possible, and then thin their schedules as revenue trends and fuel forecasts come into view. Aircraft delivery schedules tend to be reliable, but lease returns and retirements ar

41、e rarely shared. Management disclosures are helpful, but in no way binding. Simply put, capacity is a bit of a guessing game, in our view.It is our view that capacity sentiment notably improved during earnings season. MAX recertification at best appears to be a year-end event, in our view. Furthermo

42、re, the scope of the delay and accompanying operational complexity of returning planes to service suggest a more measured pace of reintroduction than we believe many investors feared the three U.S. operators (at the time of the grounding) have suggested the phase-in could take a couple of months. Me

43、anwhile, Southwest assured investors that a double-digit 2020 growth rate wouldnt occur (and we had been assuming +12%), and American seemed to surprise some with a consolidated growth plan of merely 5%. 3.5% growth at Alaska is about what we expected, but the company also indicated a more measured4

44、-6% long-term CAGR, comparing favorably to one-time ambitions in the 8% range. Simply put, our primary takeaway from earnings season is that capacity pessimism appears to have pivoted to capacity optimism. Suddenly, the tenor of investor conversations on this topic have become upbeat, in ouropinion.

45、Against this backdrop, two of our ratings have reversedStarting with Alaska, we continue to applaud management on the pace of deleveraging, industry-leading YTD margin improvement, and continued pursuit of 13-15% pre-tax margins through the economic cycle. But valuation has pulled ahead of nearly al

46、l others (LUV being the exception), even on our 2020/2021 forecasts that top consensus, which suggests our favorable views on Alaska are far from proprietary. And our 9.5x target multiple is currently topped only by our 10 x target on LUV. While ALK share price5performance hasnt proven the singular

47、best in 2019 (that would be LUV, which we struggle to understand), its second half sprint to the upside has exceeded all others ex- AAL (with AALs whipsawing not for the faint of heart, in our view).Turning to JetBlue, the company recently affirmed its $2.50$3.00 EPS target for 2020, and specificall

48、y guided (and realistically so, in our view) to low-single-digit RASM improvement. Granted, we were already in the +3% range, but feedback from investors suggests our competitors were not. Combined with a lower fuel price assumption ($2.10/gallon) and a few other modeling tweaks, our 2020 forecast r

49、ises from $2.34 to$2.67, taking up residence in the guided range where few others reside (as evidenced by the $2.39 consensus).What makes JetBlue the more compelling investment than Alaska from current levels, in our view, isnt absolute risk. We actually have more confidence in Alaskas ability to ex

50、ecute and maintain positive RASM in 2020 than JetBlues. And while JetBlues A220 fleet and aggregate transatlantic ambitions are expected by us to prove accretive, that outcome is admittedly just a forecast.But we cant escape sentiment and relative valuation. As illustrated in Figure 1, JetBlue is fa

51、r from a sell-side consensus favorite; more “sells” than any airline and the “buys” than anyone but Spirit. But it trades 2.5x P/E turns inside ofAlaska.Furthermore, at just an 8x target multiple the second lowest in our universe aside from American we believe shares have the potential to rise to th

52、e $24 level over the next year. Simply put, we have renewed confidence in JetBlues ability to achieve its 2020 targeted guidance range, and believe that investors at current levels are receiving more-than-adequate compensation for uncertainty in this regard (as evidenced by valuation). Given forecas

53、ted upside potential to $76 and $24, respectively, our Alaska rating drops from Overweight to Neutral, while JetBlue rises from Neutral toOverweight.Figure 2: Airline multiples dont appear stretched to us, and we are using low targetsUS Airline Multiples12.0 x11.3x10.0 x9.5x9.2x 9.5x9.0 x8.5x8.0 x7.

54、0 x6.9x6.6x6.6x6.6x5.0 x10.0 x10.0 x9.5x9.2x 9.5x9.0 x8.5x8.0 x7.0 x6.9x6.6x6.6x6.6x5.0 x8.0 x6.0 x4.0 x2.0 x0.0 xLUVDALALKSAVEUALJBLUAALAverage 2020/2021 MultipleTarget MultipleSource: Bloomberg, J.P. Morgan estimates.6We still believe in a (mostly) profitable recessionWere not modeling for a reces

55、sion in 2020, though we consistently like to stress-test our models. Our last thorough effort occurred in 2016, and at the time we estimated that the industry would remain profitable in the next downturn, an outcome that has never before occurred. The good news is that we continue to believe in this

56、 forecasted outcome.The bad news is that it doesnt look as profitable as what we estimated in 2016, and while the industry is forecasted to remain profitable, American is not. The reason is simple; spot jet fuel averaged $1.29 in 2016, which allowed a higher starting point for margins (16.1% operati

57、ng, 14.6% pretax). For 2019, spot jet has averaged $1.93 thus far, and margins (inclusive of 4Q forecasts) are 11.3% (operating) and 10.2% (pretax).So what happens to air travel demand in a recession?Industry revenue trends have consistently reversed by 13 points during a downturn, relative to trend

58、s observed over the nine months prior. Put differently, if the industry were to average a 5% revenue growth rate leading into the recession, the recession itself could be expected to witness an 8% yr/yr decline during the nadir months, then recover quickly from there.Table 4: Recessions usually have

59、 driven consistent reversals in revenue growthRevenue Growth Rates*RecessionBeforeDuring(Reversal)Jan 80 to Jul 80 - Domestic28.7%16.0%-12.7%Jan 80 to Jul 80 - System27.3%14.7%-12.6%Jul 81 to Nov 82 - Domestic12.2%0.4%-11.8%Jul 81 to Nov 82 - System9.9%-0.1%-10.0%Jul 90 to Mar 91 - Domestic7.0%-3.2%

60、-10.3%Jul 90 to Mar 91 - System9.9%-2.7%-12.6%Mar 01 to Nov 01 - Domestic7.3%-8.4%-15.7%Mar 01 to Nov 01 - System9.1%-6.4%-15.5%2008/9 Great Recession - Domestic*1.4%-15.2%-16.6%2008/9 Great Recession - System*5.9%-15.8%-21.7%Average - Domestic (ex-Great Recession)13.8%1.2%-12.6%Average - System (ex