Global Airlines

Presented By:

Parveen Rai
Dan Wurst
Amar Leekha
Aman Sandhu
Overview of Presentation
Industry Overview
Current State
Trends
Key Statistics
Regional Overviews
Europe, North America & Asia-Pacific
British Airways
Singapore Airlines
SouthWest
Conclusion
Characteristics of the Industry
Very cyclical, moves with strength of economy
Low Profit Margins….and falling
Economic growth

Asset intensive industry

Investments in aircraft, facilities & equipment
Labour constitutes largest cost
Jet fuel costs second largest expense

Strategic Alliances to defend against competition

Technology
E-tickets
Online Vendors
Future Outlook
Recovery of US economy
• Confidence in President Bush
Fuel Prices?
Government Funding
• National security
• Subsidies
High tax burden & Regulations
Cost structure
Increase buying power of customers
Customer demands
• Personal & Business customers
Employee Cost
Profitability
Macroeconomic Forces
Slow Economy
Airlines lost $2.5 billion in 2003 (IATA)
Total 2001-2003 losses: $23.2 billion

External Factors Leading to Losses:

 September 11th
 Costs of implementing new security measures at airports
 Severe Acute Respiratory Syndrome (SARS)
 Increased insurance premiums
 Rising fuel prices in 2003
Trends
Growth in Traffic
RPM’s grew 2.3% in 2003
Average industry load factor reached record 73.4 %
Increase in cargo volume

Large Layoffs

Increased competition from low-cost carriers

Westjet, Southwest and other clone airlines

Increased borrowing to cover losses from

macroeconomic effects
Capacity Utilization
Regional Overview:

European
North American
Asia-Pacific
European Market Overview
European Market
Slower growth for major European carriers:
Increase of “no frill” carriers
Deregulation
Worldwide Economic downturn
Structural problems of overcapacity
Threats of terrorism*

***Carriers exposed to US market***

Trends: Euro Market
No-frills airlines growing rapidly
Traffic levels within Europe have remained strong
Account for 1/3 of UK domestic services and routes
between the UK and Europe
Increase in amount of planes & routes

Deregulations reduce barriers to entry

Likely to be followed by industry consolidation
Further Growth expected

Future focus on other Euro hubs

Alliances and Strategic Partnerships

North American Market
North American Market
Most mature market

1978 Deregulation: emergence of “no-frills”

market
Followed by consolidation of industry

“No-frills” make up 20% of US domestic

market
Southwest leading low-cost carrier
Sending major carriers into bankruptcy
North America (cont)
Major Domestic Airlines expanding
international presence

US signing of “open skies” agreement

Unrestricted capacity and frequency

Factors depressing air travel

September 11
2001 Recession
Fall of US Airways & United: currently
restructuring
Asia-Pacific Market
Asia-Pacific Market
Relatively immature airline market

Strong growth in airline travel

1997-98 Asian crisis temporarily halted growth

Restructuring
Disposal of non core assets
Termination of loss making routes
Wide ranging cost reduction programs
Asia-Pacific
Asian carriers look to form alliances with European
and N. American carriers

Affected by US economy downturn (2001-2002)

Less sever on air travel industry compared to US

Growth rate expected to be greater than that of

western airline markets
Rapid growth in large domestic markets (China)

Most regulated region for air travel

Competitive Advantage: closer to home
Key Measures of Performance
International Routes
(Passengers Carried)
International Routes (RPK)
Total Passengers Carried
(All Routes)
Total RPK
 0
5
10
15
20
25
30
1937
1941
Past Yields

1945

1949
1953
1957
1961
1965
1969

Nominal Yields
Yields

Yields
1973
1977
1981
1985
Real Yields

1989
1993
1997
2001
Industry Growth Trends
Industry Growth Trends (cont)
Forecasted Revenue Passengers (in millions)

230.0
220.0
210.0
200.0
190.0
180.0
170.0
160.0
150.0
140.0
130.0
120.0
110.0
100.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Industry Growth Trends (cont)
Forecasted RPK's (in millions $)

110,000.0
105,000.0
100,000.0
95,000.0
90,000.0
85,000.0
80,000.0
75,000.0
70,000.0
65,000.0
60,000.0
55,000.0
50,000.0
45,000.0
40,000.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Projected Revenue Growth
What Does the
Future Look Like?
Profits/Losses

10,000,000

5,000,000

*
73

76

79

82

85

88

91

94

97

00

**
03
19

19

19

19

19

19

19

19

19

20
-5,000,000

20
-10,000,000

-15,000,000
Profitable Strategies
Recovery of airline industry helps other industries
Carriers must demonstrate:
• “Comfortable” Security
• Customer service
• Productivity
Government Involvement:
• Cooperation with airports and airlines
• Encourage travel
• Minimize hassles
• Airport fees
Alternatives for short Hauls
Profitable Strategies
Airport – Airline Relationship
• Work together with final customer in mind
Ticket Prices
• Low cost carriers
• Increased competition
• Price conscious business customers
Labour Productivity
Consolidation of Industry
• Mergers/Strategic Alliances
Growth Constraints:
Fuel Costs
Fuel Efficiency:
43.6
pm/gallon
Hedging
Fuel Costs: Past
Past Fuel Costs

1.2
1
0.8

0.6 $/Gallon
0.4
0.2
0
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
Fuel Costs: Future
Forecasted Fuel Costs

0.84
0.82
0.80
0.78
0.76
0.74
0.72 $/Gallon
0.70
0.68
0.66
0.64
0.62
0.60
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Growth Constraints: Taxes
Taxes:
1972: Taxes = 7% of
ticket price
2004: 26% of ticket
British Airways
 British Airlines

Listed and Traded on the London Stock Exchange

Trading symbol: BAY
Also Trades as an ADR on the TSX and NYSE
• Symbol: BAB
• 1 ADR = 10 Shares
 British Airlines
As of Market Close on November 2,
2004
• Bid: 218.75 Pents ($4.93 CDN)
• Ask:219 Pents ($4.94 CDN)
• Volume 28,551,043
• Outstanding Shares: 1,070,077,000
 Background

One of the leading airlines in Europe

• Second biggest in Europe by passengers carried
Operating Bases
• Heathrow
• Gatwick
British Airways is a public limited company
Employed approximately 49,072 employees in
2004
It operates 291 aircraft
Flies to 550 destinations in 133 countries
 A Quick History Lesson
Successors:
• Aircraft Transport and Travel Limited (Daimler Airways)
• Instone
• Handley Page
• British Air Marine Navigation
• Smaller Airlines (1935 merged into British Airways
Limited)
Merged In 1939
• British Overseas Airways Corporation
Trading of BA shares began in 1987
Alliance
Member of Oneworld
• American airlines
• Qantas
• Cathay Pacific
• Iberia
• Finair
• Aer Lingus
• LanChile
Franchises and Holdings
Franchises
• GB airlines
• British Mediterranean
• British Airlines Citiexpress
• Loganair
• Sun Air
Holdings
• Air Mauritius
• Qantas
• Spanish Iberia
Stated Objectives
Future size and shape strategy
• Achieve a 10% operating margin
• Operating margin up 1.6 points from 3.8 points in 2003
• 13,000 reduction in employees since August, 2001
Fleet and network strategy
• Aircraft replacements
• Reduced fleet by 39 aircraft
• Gatwick moving to point and spoke strategy
Low fares strategy
• On 180 shorthaul routes
• Compete with no frill competitors
External cost reductions
Hedging strategies
Employee cost saving strategies
Product and service improvements
 Main Competitors
Europe Market
• Lufthansa
• Air France
North American Market
• United
Cost Structure
10%
8%
30%

13%

8% 9%
7% 2%
13%

Employee costs
Depreiction and ammoritization
Aircraft lease costs
Fuel and oil costs
Engineering and other aircraft costs
Landing fees and en route charges
Handling charges, catering and other operating costs
Selling costs
Accomodation, ground equipment costs and currency differences
Geographic Revenue Distribution
Geographic Distribution of Revenue

Europe The Americas

Africa, Middle East ,and India Far East and Australia
 Strengths/Opportunities

Strong Brand Equity

Account for over half of flights within
UK
New low fares strategy to compete
against “no frills airlines”
37.3% increase in operating profit
Increasing air travel
Weaknesses and Threats
Heavy Competition
Strict Government Regulations
• Route flying rights
• Fare setting
• Airport access
• “Slots” availability
• New operational standards (security, safety)
Jet Fuel Prices
Terrorism
Demand for travel affected by economic conditions (SARS)
Increased Insurance Costs
Increased Security Costs
 Management
Rod Eddinghton
• Chief Executive
• May 2000
John Rishton
• CFO
• September 1994 via controller
Mike Street
• Director of customer service and operations
• 1997
Robert Webb QC
• General Counsel
• 1998
Martin George
• Director Marketing and Communications
• 1987 via director of Marketing
Management Con’t
Roger Maynard
• Director of Investments
• 1987 via VP Commercial Affairs N.A
Alan McDonald
• Director Engineering
• 1966
Lloyd Cromwell Griffths
• Director of Flight Operations
• 1973 via Chief Pilot
Paul Coby
• Chief Info Officer
Robert Boyle
• Director of Commercial Planning
Neil Roberts
• Director for People
 Operations
2004 2003 2002 2001 2000
Passenger .73 .719 .704 .714 .696
Load
Factor
RPK 103,092 100,112 106,270 123,970 127,425
(Millions)
Passengers 36,103,000 38,019,000 40,004,000 44,462,000 18,315,000
Carried
ASK 141,272 139,172 151,046 17,2524 183,158
(Millions)
Breakeven .636 .639 .65 .644 .659
Load
Factor
RTK 14,771 14,231 14,362 16,987 17,215
(Millions)

Tons Cargo 796,000 764,000 755,000 914,000 909,000

Carried
 Liquidity Analysis
Q1-2004 2004 2003 2002 2001 2000 1999

Current .922 0.922 .773 .799 .813 .777 .847

NWC -242 -231 -818 -642 -562 -774 -465

 Capital Structure Analysis
Q1-2004 2004 2003 2002 2001 2000 1999

Debt/Equity 4.21 5.54 6.15 5.16 4.44 4.53 3.04

Interest 2.1 1.6 .3 1.7 1

Coverage
 Capital Market Analysis
Q1-2004 2004 2003 2002 2001 2000 1999

Price 7.58 7.62 -10.7 -21.35 14.99 -7.85 3.96

Earnings

Market 1.56 1.52 .62 1.16 1.34 1.42 1.44

to Book

Dividend 0 0 0 .057 .054 .042

Yield

Dividend 0 0 0 .852 -.427 .164

Payout
 Profitability Analysis
Q1-2004 2004 2003 2002 2001 2000 1999

ROA 4.38% 3.05% -.87% -.88% 1.64% -3.28% .9%

ROE 20.53% 19.96% -6.21% -5.42% 8.92% -18.11% 3.64%

Profit 5.23% 3.84% -1.32% 4.1% .94%

Margin

EPS .370 -.103 -.114 .210 -.420

 Cash Flow Analysis
2004 2003 2002 2001 2000

Free Cash £676,000,000 £ 942,000,000 £ 213,000,000 £ 491,000,000 £ 316,000,000

Flow
Stock Valuation
Discount Rate
• Beta = 1.98459
• Market Return = 7.48% (FTSE 20 yr average
return)
• Risk Free = 2.47% (1 Year LIBOR)
• Discount Rate = 12.22%
• Average Cash Flow = £527,600,000
 Stock Valuation
2004 2005 2006 2007 2008 2009 2010 2011 2012
Free Cash 527.6 527.6 527.6 527.6 527.6 527.6 527.6 527.6 527.6
Flow

Discounted 470.23 419.1 373.53 332.91 296.72 264.45 235.7 210.07 187.23

PV = £7,789,940,000
Market Capitalization = £3,032,128,400
Undervaluation = £4,757,811,600
Pricing Chart
Pricing Chart (5 Year)
Recommendations
Poor operating statistics
Liquidity Problems
Barely covering interest
Poor earnings

Therefore…Sell
Singapore Airlines
Listed and traded on the
Singapore Stock Exchange
Share price as of Nov 3
10.90 SD
Also traded in the US as an
ADR: Symbol SPAAF
Exchange Rate: 1.37414 SD
– 1 CAD (As of Nov 3rd)
Number of shares issued
1,218,149,660
Brief History
SIA began in May 1947, when Malaysian Airways first
operated a twin-engined Airspeed Consul between Singapore,
Kuala Lumpur, Ipoh and Penang.

1963 – Changed to Malaysian Airlines with formation of

federation of Malaysia

1966 – Became Malaysian-Singapore Airlines

1972 – Restructured itself into 2 airlines (Malaysian &

Singapore Airlines)
 Stated Objectives
Continue to offer innovative promotions to attract
new customers and maintain competitive advantage
Create new non-stop routes which will connect the
East to West. These flights offer quick and efficient
non-stop service utilizing SIA’s new Airbus A340-500’s
• After implementing the longest flight in the world from
Singapore to Los Angeles and recently creating a new
non-stop route from Singapore to New York, SIA plans to
create new routes to decrease flight and stop-over time
Provide competitive fares through their low-cost
subsidiaries (Tiger, SilkAir and Virgin Airways)
Build new terminal in strategic locations to cater for
low-cost airlines (i.e. new terminal built in Changi
Airport)
Route Map
Star Alliance Members
Air Canada Singapore Airlines
Air New Zealand Spanair
ANA Thai Airways
Asian Airlines United
Austrian US Airways
BMI VARIG
LOT Polish Airlines SAS
Lufthansa
Subsidiaries of SIA
Silk Air
SIA Engineering Co.
Tradewinds
SIA Cargo
SATS
Main Competitors
Cathay Pacific
Japan Airlines
Malaysian Airlines
Strengths Weaknesses
 Great Reputation for Terrorism
quality service Jet Fuel Prices
 Low Debt Structure (low SARS
interest costs)
War in IRAQ
 Addition of new Airbus
Decrease in load factor
A340-500’s
Decline in EPS
 New non-stop routes
 Partners & Alliances
 Profit Sharing Plans
 Excellent in flight-service
(fleet)
Cost Structure
2% 4% 17%
10%
7%
13%

9%
2%
6%
11% 19%

Staff Costs
Depreiction and ammoritization
Aircraft lease costs
Fuel and oil costs
Aircraft Maintenance and Overhaul Costs
Airport and Overflying Charges
Handling charges, catering and other operating costs
Selling costs
Rentals on Leased Aircraft
Communication and Information Tech Costs
Other Costs
Geographic Distribution Of Revenue
11%
29%
19%

20% 21%

East Asia Europe

Americas South and West Pacific

West Asia and Africa

 Operating Data
04-03 03-02 02-01 01-00 00-99

Pax Carried 13278000 15326000 14765000 15002000 13872000

ASK 88252700000 99565900000 94588500000 92648000000 87728300000

RPK 64685200000 74183200000 69994500000 71118400000 65718400000

Pax Load
Factor 73.30% 74.50% 74.00% 76.80% 74.90%

Pax Break/
Even
Factor 72.80% 73.60% 71.10% 70.20% 66.2%
Liquidity Analysis

2004 2003 2002 2001 2000

Current 0.9177 0.6871 0.9243 0.8925 0.9432
Ratio
Net -0.013 -0.0596 -0.0128 -0.0237 -0.0129
Working
Capital
Ratio
Capital Structure Analysis

2004 2003 2002 2001 2000

D/E 0.3900 0.3952 0.3937 0.3619 0.3547

Interest
Coverage 13.333 15.159 21.811 50.792 39.352
Ratio
Capital Market Analysis

2004 2003 2002 2001 2000

P/E 15.638 10.011 27.746 10.751 17.505
Market- 11.802 11.286 10.951 10.738 9.537
Book
Dividend 0.01376 0.01142 0.01597 0.02573 0.01250
Yield
Dividend 0.12904 0.17064 0.33528 0.20861 0.19716
Payout
Profitability Analysis Ratio

2004 2003 2002 2001 2000

ROA 4.336% 5.639% 3.462% 9.017% 6.923%
ROE 6.038% 7.863% 4.770% 12.25% 9.172%

Profit .08700 0.10126 0.06740 0.15772 0.13077

Margin
EPS 0.697 0.874 0.519 1.265 0.914
Quarterly Financial Data 2004
Q1 April – June Q2 July – Sept
ROE 0.017679754 0.024443137
ROA 0.012441246 0.01693934
P/E 52.830 37.201
D/E .42105 .44297
EPS 0.212 0.293
P/BV 11.99111 11.98700
Cash Flow Analysis

2004 2003 2002 2001 2000

Free Cash 1153.7 94.4 -472.7 756.2 87.3
Flow
(SGD)
Million Million Million Million Million
Stock Valuation
Discount Rate
• Beta = 0.631
• Market Return = 5.36% Strait Times Index (10
Yr Average)
• Risk Free Rate = 1.4% (5 Year Bond)
• Discount Rate = 3.8988%
• Average Cash Flow = 441.08 Million SGD
Stock Valuation
2004 2005 2006 2007 2008 2009 2010 2011 2012

Free Cash 441.08 441.08 441.08 441.08 441.08 441.08 441.08 441.08 441.08
Flow Million Million Million Million Million Million Million Million Million

Discounted 424.52 408.58 393.26 378.50 364.29 350.63 337.46 324.80 312.62

• Present Value: 3,294,660,000

• Market Capitalization: 13,281,736,011.48 SGD
• Overvalued: 9,987,076,011.48 SGD
Recommendation
Moderate Buy

Very Liquid Company (high current ratio and large

cash on hand)
Great track record for exceptional customer service
Constant dividend payout
Expanding routes and services
Diversified risk through low cost subsidiaries
Very low levels of debt (low interest payments)
 Southwest Airlines

Share Price: USD$15.96

Southwest Airlines (LUV)
Listed on: NYSE
Symbol: LUV
Index Member:
S&P 500, DJTA
Market Cap: $12.44B
Shares Outstanding:
779.58M
Daily Departures:
2,800 flights a day
Company Background
Began service June 18, 1971
with flights to Houston, Dallas,
and San Antonio.

Shorthaul, high-frequency,
point-to-point, low-fare service
Most airlines use the hub-and-
spoke system

As of December 31, 2003,

Southwest served 337 nonstop
city pairs.

largest carrier based on

scheduled domestic departures.

2003 marked Southwest's 31st

consecutive year of profitability.
Growth and Expansion
Addition of 16 nonstop flights from Chicago Midway Airport
to 13 existing nonstop markets.
nonstop service to:
Orlando
Oakland
Fort
Lauderdale/Hollywood Phoenix
Manchester Seattle
Las Vegas Providence
Raleigh-Durham Philadelphia, and
Columbus
Tampa Bay
Los Angeles
will begin in the first International
quarter of 2005
Cost Reducing Strategies
Restructuring
Consolidation of reservations operations
Elimination of traditional travel agency
commissions
Future fleet of Boeing 737-700 will have
fuel-saving Blended Winglets
Hedging 70-80% of fuel costs at
approx. $24/barrel of crude oil
Mission Statement
“…dedication to the highest quality of
Customer Service delivered with a
sense of warmth, friendliness, individual
pride, and Company Spirit.”
Statement of Objectives
to provide safe, low price transportation

maximum customer convenience

to be the cheapest and most efficient operator

In specific domestic regional markets

to provide customers with a high level of convenience

and service

Outstanding customer service through highly

motivated employees.
Main Competitors
AMR Corp. (AMR)
JetBlue Airways Corp. (JBLU)
Delta Airlines Inc. (DAL)
Strengths/Weaknesses
Strengths Weaknesses
Known for superior Point-to-point creates
customer service excessive expenditure
Low-cost, no-frills Too many locations,
Direct one-way travel administrative costs
Point-to-point efficiency Risk to shocks in US
Largest carrier for economy, since it is a
domestic service domestic carrier
One fleet type
Hedge against exposure
to fuel prices (80%)
Only airline rated
investment grade
 Cost Structure

18%

7% 41%

7%
3%
8%
1% 15%

Salaries, wages & benefits Fuel & oil

Maintenance materials & repairs Agency commissions
Aircraft rentals Landing fees & other rentals
Depreciation & amortization Other operating expenses
Market Share & Capacity
System Map
 Boeing 737 Fleet
737 Type Seats Average # of # Owned #
Age Aircraft Leased
(Yrs)
-200 122 21.2 23 21 2

-300 137 12.6 194 110 84

-500 122 12.7 25 16 9

-700 137 3.3 146 145 1

Totals 9.6 388 292 96

• Plans to retire 23 737-200 by end of first quarter 2005.

 Operating Data
($’s in millions) 2003 2002 2001 2000 1999

RPM (000s) 47,943,066 45,391,903 44,493,916 42,215,162 36,479,322

ASM (000s) 71,790,425 68,886,546 65,295,290 59,909,965 52,855,467
Passenger load 66.78% 65.89% 68.14% 70.46% 69.02%
factor
Passenger $0.1197 $0.1177 $0.1209 $0.1295 $0.1251
revenue yield per
RPM
Size of fleet at 388 375 355 344 312
year end
Financial Data
($’s in millions) 2003 2002 2001 2000 1999
Operating $5,937 $5,522 $5,555 $5,650 $4,736
revenue
Operating 5,454 5,105 4,924 4,628 3,954
expense
Operating income 483 417 631 1,022 782
Operating margin 8.14% 7.55% 11.36% 18.09% 16.51%
Net income 442 241 511 603 474
Net margin 7.44% 4.36% 9.20% 10.67% 10.02%
EPS (basic) $0.56 $0.31 0.67 0.81 0.63
EPS (diluted) $0.54 $0.30 0.63 0.76 0.59
Liquidity
2003 2002 2001 2000 1999

Current Ratio 1.34 1.56 1.13 0.64 0.66

NWC (million’s) 590 798 281 (466.5) (329.4)
Capital Structure
2003 2002 2001 2000 1999

Interest 5.31 3.93 9.01 14.59 1.45

Coverage
D/E 0.96 1.02 1.24 0.93 0.99
Capital Market Analysis
2003 2002 2001 2000 1999

P/E 28.82 44.84 27.58 27.60 17.13

MV/BV 2.52 2.44 3.51 4.82 2.87

Dividend Yield 0.11% 0.13% 0.10% 0.07% 0.13%

Profitability
2003 2002 2001 2000 1999

ROA 4.69% 2.68% 6.53% 9.79% 9.15%

ROE 9.33% 5.71% 13.69% 19.19% 18.13%

Profit Margin 7.44% 4.36% 9.20% 10.67% 10.02%

EPS $0.54 $0.30 $0.63 $0.76 $0.59

Cash Flow Analysis
(dollars in 2003 2002 2001 2000 1999
millions)
Cash Flow From 1,336 520 1,485 1,298 1,029
Operations

Free Cash 98 (83) 487 163 (139)

Flow
Cash Flow Analysis
increase in operating cash flows in 2003 a result of:
due to higher net income
$271 million government grant from the Wartime Act
increase in accrued liabilities
decrease in accounts and other receivables

Heavy investments result in FCF of $98Mill for 2003

Large cash increase due to exercise stock options

Use increase in cash flow to repurchase up to $300 million of
common stock in the open market
Stock Valuation
Discount Rate
• Beta = 0.852
• Market Return = 9.98% Average Return S&P 500
Index (22 Yr Average)
• Risk Free Rate = 4.85% (30 Year Bond)
• Discount Rate = 9.2105%
• Average Discounted Cash Flow=$96,318,685.20
Discounted Cash Flow

Present Value: $528,970,792

Market Capitalization: $12.44B
Net Market Value of Assets
737 Type Seats Average # of # #
Age (Yrs) Aircraft Owned Leased
-200 122 21.2 23 21 2

-300 137 12.6 194 110 84

-500 122 12.7 25 16 9

-700 137 3.3 146 145 1

Totals 9.6 388 292 96

Competitor Comparison
LUV AMR DAL JBLU Industry

Market Cap: 12.44B 1.33B 713.46M 2.45B 635.40M

Employees: 32,847 96,400 70,600 4,704 5.30K
Rev. Growth: 7.50% 0.80% -0.00% 57.20% 10.10%
Revenue: 6.36B 18.50B 14.54B 1.19B 1.46B
Gross Margin: 29.01% 21.18% 7.02% 39.34% 20.71%
EBITDA: 902.00M 1.30B 158.00M 206.19M 158.97M
Oper. Margins: 7.56% -0.09% -7.37% 12.56% 4.24%
Net Income: 284.00M -482.00M -2.86B 64.61M N/A
EPS: 0.349 -3.027 -22.958 0.585 N/A
PE: 45.73 N/A N/A 40.50 15.03
PEG: 2.53 N/A N/A 2.69 0.81
PS: 1.90 0.07 0.05 1.93 0.31
Quarterly Financials
3rd Q 2nd Q
Sept 30/04 June 30/04
ROE 2.21% 4.30%
ROA 1.06% 2.09%
D/E 1.13 1.06
EPS $0.15 $0.14
P/B 2.14 2.58
P/E 90.80 119.79
Market Trend
Commitments & Contingencies
contractual obligations and commitments
future purchases of aircraft
payment of debt
lease arrangements
primarily of scheduled aircraft acquisitions
from Boeing
28 scheduled for delivery in 2005, 22 in 2006, 25
in 2007, and 6 in 2008
$650Mill worth of accrued liabilites in 2003
Profitability
Valuation
Investment grade rating
P/E ratio > industry
PEG ratio > industry
EPS > industry
Low D/E ratio (not highly leveraged)
Market Cap > DCFCF
Current ratio, interest coverage, D/E >
industry average
Recommendation
HOLD
Showing of strong future growth
Cash Flows are not consistent
Seasonal, so expect price to go up during spring
Pretty consistent stock
31st consectutive year of profitability
Steady dividend for common shareholders
Not very leveraged, hedging of fuel costs limit exposure to risk
Safety in the Stock
Current ratio, interest coverage, D/E > industry average
Senior unsecured debt considered investment grade:
S&P, Moody’s and Fitch