美国航空业Q4总结

1、North America Corporate Research28 January 2019US AirlinesQ4 Wrap; Slightly Higher Targets, Sort Of Assigned Seating at Southwest?Earnings season (SAVE is still to come) largely assuaged investor concernsrelated to the government shutdown as well as potential capacity creep and near- term demand tre

2、nds. From here, risk-to-reward seems more favorable to us than upon the eve of earnings, with several names having yet to show meaningful appreciation from said point. With little change to most forecasts, we are slightly raising our target multiples resulting in firmer year-end targets across the b

3、oard but with no attendant ratings changes. We also opine on the feasibility and potential profitability of seat monetization at Southwest, though strenuously emphasize were aware of no such plans under consideration.Our estimates are little changed The majority of guides emerged to our prevailing e

4、stimates, though stronger Southwest took us surprise and Alaskas cost trajectory is more uneven than anticipated (though expected to end the year in the same place). Comparatively speaking, modeling adjustments areunremarkable.But price targets are lifted We are of the view that we are closer to the

5、 conclusion the shutdown drama than its start 35 ago, once adjusted the three reprieve - though this is not expertise. Either enough airlines have commented the financial impact that believe the worst of investor fears have been put to rest, though ATC disruption and ground stops may create noise he

6、re and there. put, we believe risk-to- reward coming out earnings is better than going in; guided up, didnt disappoint, and Southwest margins appear set to rise after all, example. Accordingly, we are comfortable in elevating our multiple targets by a half turn across the board, after dialing them i

7、n earlier this month as an uncertain earnings period (in our view) was fastapproaching.Southwest Credit/Rel Val Update Our credit recommendation on remains Neutral. We continue to expect and to upgrade LUVs ratings from to low A where Moodys sits currently (Fitch on Positive currently). The intermed

8、iate bonds (3.45% due 2027) trade about 13bps tight to lower rated FedEx along most FedEx as a solid mid- and 110bp tight to low BBB Delta. LUVs CDS level is 1bp tight to FedEx and about 60bp tight to Delta. All these relationships make sense to Airlines & Aircraft Leasing/Equity Jamie Baker AC(1-21

9、2) 622-6713 HYPERLINK mailto:jamie.baker jamie.bakerBloomberg JPMA BAKER J.P. Morgan Securities LLCNishantMani(1-212)622-5707 HYPERLINK mailto:nishant.mani nishant.maniJ.P. Morgan Securities LLCKaran Puri(91-22) 6157-3327 HYPERLINK mailto:karan.puri karan.puriJ.P. Morgan India Private LimitedAirline

10、s & Aircraft Leasing/Credit Mark Streeter, CFA AC(1-212) 834-5086 HYPERLINK mailto:mark.streeter mark.streeterJ.P. Morgan Securities LLCIan BSnyder(1-212)834-3798 HYPERLINK mailto:ian.b.snyder ian.b.snyderJ.P. Morgan Securities LLCEquity Ratings and Price TargetsCompanyTickerMkt Cap ($ mn)Price ($)

11、Rat Curing PrevCur Price TargetEndDateEnd DateAmerican AirlinesAAL US17,029.1736.57OWn/c43.00Dec-1940.00n/cDelta Air Lines, Inc.DAL US32,790.8348.01OWn/c62.00Dec-1959.00n/cUnited Continental Holdings, Inc.UAL US23,408.8284.60OWn/c101.00Dec-1995.00n/cSouthwest Airlines Co.LUV US31,812.9655.52UWn/c52.

12、00Dec-1945.00n/cAlaska Air Group, Inc.ALK US7,995.6764.53Nn/c71.00Dec-1967.00n/cJetBlue Airways Corp.JBLU US5,699.5218.16Nn/c19.00Dec-1918.00n/cSource: Company data, Bloomberg, J.P. Morgan estimates. n/c = no change. All prices as of 28 Jan 19.See page 25 for analyst certification and important disc

13、losures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies covered in its research 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 thi

14、s report as only a single factor in making their investment decision. HYPERLINK / Jamie Baker(1-212) 622-6713 HYPERLINK mailto:jamie.baker jamie.bakerNorth America Corporate Research28 January 2019for now, although we would expect LUV credit spreads to tighten if we are right and low A ratings acros

15、s the board come to fruition.American Credit/Rel Val Update Our credit recommendation American remains Neutral. AALs embrace leverage is certainly at the top our list. While we agree that most of the debt is aircraft related and at very attractive all- in rates (weighted average coupon 4.59% per Blo

16、omberg), American will left with a material non-operating expense disadvantage if the economic cycle deteriorates significantly. AALs ratings momentum has stalled until ratios improve in 1-2 years (dependent on how quickly EBITDAR rebounds - water until the capex run rate declines, keep reading), bu

17、t we do still see from BB (unsecured bonds rated B1/BB-/BB-, Moodys notches down from Ba3 rating) to mid eventually. We remain comfortable AAL short-dated unsecured bonds (5.5%s) 4% basically risk (the 5.5% bonds, $750mm outstanding, mature on 1-Oct-19, 4.625% bonds, $500mm, mature on 1-Mar-20). And

18、 do think the CDS difference between AAL and UAL, at just over 135bp (to be clear, UAL tighter) is too wide. that the new $10bn on-balance-sheet aircraft lease liability is close to our running estimate; see our comments below fordetails.Sort Of Assigned Seating at Southwest? Our analysis suggests S

19、outhwest could easily add $0.10 to $1.00 in annual EPS monetizing up to four rows each aircraft. Essentially, offering a paid opt-out to the need to queue in advance, thereby guaranteeing last on/first status travelers (along dedicated bin space). Will it fly? We have no idea, but believe the concep

20、t checks four important ease of execution, passenger understanding, profits, and the broader preservation the existing Southwest experience.Since several have asked United pilots We are modeling an 8% date- of-signing increase United pilots, beginning on January 1st, 2020. Granted, revised economics

21、, inclusive of anticipated relief, be achieved later this year, though for ease of modeling this is the way typically do it. The 8% level represents roughly $300 million incremental year-one pilot expense, relative to the 4%/$150 million contractual raise effective at the start this year, a phenomen

22、on that does not appear to have upset Uniteds full-year ex-fuel CASM guide. Granted, the 8% increase pale regard to previous post- concessionary contract rounds, but with pilot wages otherwise having been restored to the original trajectory of longer-term wage inflation September 11th not occurred,

23、can identify no reasonable reason continued 20% date-of-signing increases akin to what was witnessed earlier in thedecade.SummaryTable 1: Our December 2019 price targets are lifted across the board.Source: Bloomberg, J.P. Morgan estimates. Prices as of Jan 28, 2019.Table 2: On balance, our 2019 fore

24、casts havent changed much, and remain above consensusSource: Bloomberg, J.P. Morgan estimates. Prices as of Jan 28, 2019.Table 3: as do several of our 2020 forecasts.Source: Bloomberg, J.P. Morgan estimates. Prices as of Jan 28, 2019.Well, that seemed easy.Theearningsseasonwaslargelybereftoffirework

25、s,inourview,withthemajorityof refreshed guides emerging in-line with the expectations we last recalibrated earlier in the Granted, there were some exceptions: Uniteds $10 to $12 2019 EPS guide emerged a dollar ahead of where we expected, Southwests Q1 RASM guide was nicely ahead of expectations, and

26、 Alaskas quarter-to-quarter cost trajectory looks more clunky than we had anticipated. But industry commentary regarding the government shutdown emerged in-line if not better than some had feared, 2019 capacity trends dont appear to be accelerating unchecked (always a lingering concern when oil is c

27、heap, though were admittedly modeling 4% up from an earlier 3.7% estimate), and near-term demand trends remain largely as hoped (though 2019 RASM is expected to grow 1.5%, so less than last years2.4%).Not surprisingly, stocks are trading in-line (ALK/DAL/SAVE) to somewhat higher (the rest) than on t

28、he eve of earnings, relative to a 2% rise in the SPX. Unfortunately, earnings season did little to assuage continued recessionary concern, nor could it have been expected to, in our view - remember that air travel demand trends are trailing indicators. As such, risk still abounds, though less than w

29、e had anticipated on the way into the season.Accordingly, weve opted to re-inflate our December 2019 target P/E multiples (predicated on 2020 EPS forecasts) by a half-turn across the board, reversing an exercise we engaged in pre-earnings, when the overhang of the government shutdown was more acute

30、and confidence in continued industry capacity discipline was waning. But unlike some prior earnings seasons, the revisions to our forward- year assumptions are sufficiently benign and thus no ratings changes have emerged. Spirit (which reports on Wednesday February 6th) remains our top pick for pote

31、ntial price appreciation, followed by DAL, AAL & UAL (so, our four Overweights), with Alaska and JetBlue remaining Neutral and Southwest our sole Underweight given a$52 December 2019 price target. Are our revised multiples too conservative, with only SAVE hitting the 10 x level? Not in our opinion,

32、given the usual litany of uncertainties, chiefly surrounding GDP and RASM trends softer than 2018 (recall our mantra, “RASM equals multiple”), though we of course welcome debate in this regard.Southwest Credit/Relative Value UpdateOur credit recommendation on LUV remains Neutral. We continue to expe

33、ct S&P and Fitch to upgrade LUVs ratings from BBB+ to low A where Moodys sits currently (Fitch Positive currently). The intermediate LUV bonds (3.45% due 2027) trade about 13bps tight to lower rated FedEx (we along with most view FedEx as a solid mid-BBB) and 110bp tight to low BBB Delta. LUVs 5yr C

34、DS level is 1bp tight to FedEx and about 60bp tight to Delta. All these relationships make sense to us for now, although we would expect LUV credit spreads to tighten if we are right and low A ratings across the board come to fruition. Southwest generated 4Q18 EBITDAR of $1.151bn, an increase of 11.

35、4% y/y and 4.9% sequentially. Since YE17, balance sheet debt declined $291mm to $3.377bn at 31-Dec-18. We calculate Gross Adjusted Debt/LTM EBITDAR of 0.98x, basically flat sequentially and y/y. Free cash flow for the quarter was $451mm (operating cash flow of $989mm offset capex of $538mm). There w

36、ere no dividends paid out this quarter. Free cash flow for 2018 was strong at $2.64bn (operating cash flow of $4.893bn offset by capexof$1.922bn and dividends of $332mm). Capex will be flattish for 2019 at $1.9-$2bn. Share repurchases for the quarter were $500mm in 4Q18 bring the total 2018 amount t

37、o $2bn. There has been $750mm repurchased as part of a new $2bn program authorized in May 2018 ($1.25bn remains). Southwest has significant liquiditywith$3.68bn in cash and short-term investments as well as a fully available revolverof$1bn. Note that LUV is 70% hedged on fuel for 2019 (75%-85% prote

38、ction in 1H19, 60% 2H19) and 50% hedged on 2020. Hedging costs are still running slightly above the estimated savings, but LUV (unlike most other US airlines), feels these slight losses are a small price to pay for the insurance/stability benefit. On the fleet side, LUV plans 44 deliveries (7 owned

39、737 Max 7s, 21 owned 737 Max 9s, and 16 leased 737 Max 8s). LUV plans to retire 20 737-700s so on a net basis the fleet will grow from 750 at YE18 to 775 at YE19.American Credit/Relative Value UpdateOur credit recommendation on American remains Neutral. AALs embrace of leverage is certainly at the t

40、op of our list. While we agree that most of the debt isaircraft related and at very attractive all-in rates (weighted average coupon of 4.59% per Bloomberg), American will be left with a material non-operating expense disadvantage if the economic cycle deteriorates significantly. AALs ratings moment

41、um has stalled until ratios improve in 1-2 years (dependent on how quickly EBITDAR rebounds - or treads water until the capex run rate declines, keep reading), but we do still see upside from low BB (unsecured bonds rated B1/BB-/BB-, Moodys notches down one from Ba3 family rating) to mid BB eventual

42、ly. We remain comfortable with the AAL short-dated unsecured bonds (5.5%s) which yield4% for basically 1yr risk (the 5.5% bonds, $750mm outstanding, mature on 1-Oct- 19, while the 4.625% bonds, $500mm, mature on 1-Mar-20). And we do think the 5yr CDS difference between AAL and UAL, at just over 135b

43、p (to be clear, UAL tighter) is too wide. American generated 4Q18 EBITDAR of $1.58bn, a decline of 6.6% y/y and 4.3% sequentially. We calculate net adjusted debt/LTM EBITDAR of4.9x; up 1.2x y/y and 0.3x sequentially. In 2018, AAL returned $986mm to shareholders in the form of dividends and share rep

44、urchases ($0 stock repurchased in 4Q18, $1.65bn authorization remaining). As of 31-Dec-18, American had $7.56bn of liquidity comprised of cash/equivalents of $4.76bn and undrawn revolver capacity of$2.8bn (up from $2.5bn); note that the target remains $7bn so expect the “excess”$600mm to be utilized

45、 in 2019 for share repurchases. For 2019, capex is expected to step up to $4.7bn, including $3bn from aircraft capex. For 2020, the aircraft portion declines by a whopping $1.4bn to $1.6bn, with another $1.7bn on the non-aircraft side for $3.3bn total, or a reduction of $1.4bn y/y (and 2021 falls ev

46、en lowerto$2.2bn). Pension contributions for 2018 were lowered to $467mm but will increase to a planned $800mm (up slightly from prior $780mm guidance), but note that rising rates reduced the underfunded amount by $1.4bn). AAL could tap the HY market to “replace” the maturing bonds and to maintain a

47、 presence, but a higher probability is for AAL (like UAL today) to issue EETCs to finance aircraft in the orderbook.Management noted on the call that mainline deliveries through June 2019 have committed financing in place (bank debt, perhaps some operating leases as well). In 2018, adjusted debt inc

48、luding unfunded pensions fell by $760mm (thank you rising interest rates) and is projected to fall by another $1bn in 2019.Sort Of Assigned Seating at Southwest?Southwest has once again stoked the fires of speculation last commentary regarding “new revenue enhancements.under construction,” accompani

49、ed by the caveat that bag fees remain verboten. While we can offer no unique insight as to what the company may be pondering, we do believe we understand what the new reservation system is capable of, as well as what passengers might potentially respond enthusiastically to particularly businesstrave

50、lers.The idea is “Sort Of Assigned Seating, and it works like this: set aside up to four rows of the aircraft (24 seats) for a new boarding zone that guarantees access to one of said seats, regardless of when during the boarding process the traveler steps aboard. Simply put, this would negate the ne

51、ed to queue ahead of boarding time a process that we believe initially wastes travelers time in exchange for reducing Southwest headcount, but with some forfeited time potentially recaptured by the more streamlined seating experience on board. This would thereby allow business travelers (or families

52、 traveling with children over the age of 6) to be the last to board, but with the guarantee of a seat (and accompanying overhead space) in one of the designated rows (possibly the first four of the aircraft, or perhaps the first two plus two more rows at the over-wing exits). For business travelers

53、in particular, this would improve the overall value proposition by ensuring the last to board/first to exit option without the accompanying need to be present at the start ofboarding.Table 4: We believe Southwest could easily and profitably guarantee seats in specific rows.Source: J.P. Morgan estima

54、tes. Note that for the purposes of this analysis, we are using the system-wide number of departures from 2018, 3-abreast seating across the entire fleet, and a 75% up-sell take rate.We see several advantages. First, it largely (not entirely) retains the open seating concept for which Southwest is kn

55、own, albeit with a learning curve for those accustomed to grabbing the best seats for free. Generally speaking, Southwest has proven amenable to the pursuit of ancillary revenue, but with a preference for introducing new products (Business Select, EarlyBird Check-in, etc.) as opposed to monetizing e

56、xisting ones. Sort Of Assigned Seating toes the line in this regard, without completely jettisoning open seating. Second, we dont believe the policy would drive incremental labor expense. By simply treating Sort Of Assigned Seating as a fourth boarding zone (zone D), it wouldnt drive additional head

57、count at the gate. Granted, flight attendants would need to police eligibility, but by including exit rows this could be folded into the existing process of ensuring the 15 year age minimum and willingness to assist in an emergency. While this could potentially leave two incremental rows to enforce

58、towards the front of the aircraft, we can envision passengers doing just that, given the gate-established tradition of flashing boarding passes to one another in determining boarding order.For purposes of analysis, we do not assume any material incremental cost, though initial customer confusion cou

59、ld hypothetically slow the boarding process and weigh on operations in the short run. Plus, some signage and advertising would be required, though based on conversations with other airlines that have more aggressively monetized the travel experience (i.e. bag fees, more legroom seating) such costs a

60、re negligible.We believe Sort Of Assigned Seating could add roughly $0.10 to $1.00 per share in annual earnings. This is based on a presumed 75% take rate, and also assumes no dilution to Business Select revenue (a product that already affords early boarding if one arrives in time, accompanied by ot