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See all Premium member Presentation Transcript Global Airlines: Global Airlines Industry - Raymond and Leo British Airways - Billy Delta Airlines - Trevor Singapore Airlines - HermanPresentation Agenda: Presentation Agenda Airline Industry Overview State of the Industry Traffic and Economics Regional Summaries Analysis of British Airways Delta Airlines Singapore AirlinesAirline Industry Overview: Airline Industry Overview Economy grows, travel grows Current short-term cycle is severe RPKs negative growth SARS virus Long-term forecast remains healthy Economies will grow 3.2% annually Air travel will be 5.1% Industry deregulation stimulates air travel New routes and more frequencies Economic and traffic growth rates vary by region State of Industry: State of Industry Air Traffic Cycles Long-term TrendAir Travel Cycles: Air Travel Cycles Annual negative world traffic growth In 1991 and in 2001-2002Air Travel Cycles Cont’…: Air Travel Cycles Cont’… Long-term trends remain healthy Drivers for long-term air travel growth Economic growth Globalization of trade Airline network service improvements Declining fares Deregulation and liberalizationAir Travel Cycles Cont’…: Air Travel Cycles Cont’… In short term, air travel is more volatile Consumer confidence Business profits Depressed income High-technology stock market “bubble” September 11 Outbreak of SARS Long-term Trend: Long-term TrendLong-term Trend Cont’…: Long-term Trend Cont’… Keys: Forecast shows 5% fewer world RPKs (Revenue per kilos) at the end of 20 years than without this unusual short-term cycle Yet, air travel growth will continue the pace at 5.1% annually Traffic and Economics: Traffic and Economics Economic and Traffic Forecast: Economic and Traffic Forecast World GDP is forecast to grow by 3.2% over the next 20 years Mature economies, GDP growth will average between 2~3% Emerging economies, GDP growth may average over 4% Forecast Cont’…: Forecast Cont’…Regional Summaries: Regional Summaries European Airline Industry: European Airline Industry Companies: Companies Company in focus: British Airways Others: Air France KLM Lufthansa Virgin AtlanticSlide17: Source: Air Transport AssociationIndustry Highlights – 2002/03: Industry Highlights – 2002/03 Passengers 13.8 millions reduction Breakeven Load Factor 69.4%; compared to a 69.2% load factor Profit USD$0.87 billions lossFactors influencing the industry: Factors influencing the industry SARS phenomenon Iraqi War Post 9/11 recovery phrase External Shocks Currency Appreciation Security & InsuranceSlide20: Source: Association of European AirlinesCompetition: Competition External The US Airlines in the North Atlantic market Internal Substantially increased of no-frills competition in Europe Ryanair, Easyjet, Go, bmibaby, Virgin Exp, etc Consolidation & Alliances Star, Oneworld, KLM/Northwest, SkyTeamRegulatory Environment: Regulatory Environment Deregulation is a global trend First stage of liberalization in European Airlines European governments wants: Low fares Consequence Increased demand Increased demand for infrastructure growthTrends: Trends Slow recovery Mature economies with low growth rates Continuation of liberalization Growing international networks Rise of “No-Frills” carriers Slide24: Source: Association of European AirlinesN. American Airline Industry: N. American Airline Industry Companies: Companies Company in focus: Delta Airlines Others: United Airlines American Airlines Southwest Airlines Northwest AirlinesIndustry Highlights – 2002/03: Industry Highlights – 2002/03 Passengers 17.4 millions reduction Breakeven Load Factor Increased from 76.7% to 81.4%; compared to 72.1% load factor Profits (Loss) USD$12.1 billions lossFactors influencing the industry: Factors influencing the industry Post 9/11 recovery/syndrome Customer avoidance of air travel Government tax & Security policies Insurance Escalating fuel prices Economic downturn Iraq War and SARS phenomenonSlide29: Source: Air Transport AssociationCompetition: Competition 85% of the passengers have more than 2 or more carriers Growth of hub-and-spoke Increased competition in small markets Alliances Star SkyTeam OneWorldRegulatory Environment: Regulatory Environment Deregulations Mature liberalization Post 9/11 Financial Effect Increase financial burden for airlines Additional insurance costs Increased tax burden Slide32: Source: Air Transport AssociationSlide33: Source: Air Transport AssociationTrends: Trends Slowly recovering Mature economies with low growth rates Low fares Cost-cutting strategies Efficient airline networksAsian Airline Industry: Asian Airline Industry Northeast Asia: Northeast Asia Annual GDP growth is forecast at 2.1% This low rate is driven by Japan Korea will grow at a faster rate than Japan Air travel will grow above world average Globalization and liberalization Fully deregulation Air travel growth at 6.2%Northeast Asia Cont’…: Northeast Asia Cont’… Fragmentation will continue North America will remain popular Europe continues to growSoutheast Asia: Southeast Asia A mixture of countries at varying stages of economic growth GDP is forecast to grow at 4.7% annually over the next 20 years The region is diverse Economic and cultural interchangeSoutheast Asia Cont’…: Southeast Asia Cont’… Southeast Asia has strong cultural ties with both Europe and North America VRF (visiting friends and relatives) Region with its natural resources and cultural attractions is forecast to develop as a leisure destination for AsiaSouthwest Asia: Southwest Asia GDP outlook is forecast to grow at 5.5% Subject to: Privatization Globalization Infrastructure Tourism development Overall traffic growth of the region will average 7.0%Southwest Asia Cont’…: Southwest Asia Cont’… Traffic within Southwest Asia will average 8.7%, one of the world’s highest Encompasses several air travel markets Middle class travels for business Pilgrimage Tourists and VFRChina: China GDP forecast of 5.9% per year is the highest in the world China is the fastest growing region Air travel expands at 7.6% World Trade Organization Globalization is a major driver China Cont’…: China Cont’… Airline industry is modernizing Airline consolidation Infrastructure investment Network and fleet rationalization Participation in major alliancesAirlines Analysis: Airlines Analysis Slide45: Stock Price: £ 224 £1=1.68 US Dollar (Nov 7, 2003) British Airways: British Airways Background British Airways is a public limited company BA, is the leading airline in Europe One of the biggest in the world It manages almost 330 planes, 550 destinations in 133 countries BA has holdings in other airlines, such as the Australian, Quantas, and the Spanish Iberia. Major destinations are Europe, America, Africa, Australia, South Pacific and Middle EastBritish Airways: British Airways Strategies Low-cost strategy £650 m in cost saving by March 2003 Reduced manpower by 4446 people Corporate Mission Low fare in UK domestic market Greater use of e-technology for customers, staff and agents Focus on business class passengers British Airways: British Airways Main Competitors Europe Market Lufthansa and Air France are dominating the market North America Market United Airlines & Delta are dominating the marketBritish Airways: British Airways Alliance Oneworld alliance 8 airline members: British Airways, Aer Lignus, American Airlines, Cathay Pacific, Finnair, lberia, LanChile and Qantas.SWOT Analysis: SWOT Analysis Strengths Strong brand name Good reputation Reduce net debt Weaknesses Reduce boeing aircrafts Routes reduced Reduce service and flights Increase insurance cost Increase security cost Downturn in passenger demand cutting flights to the US and the Middle East SWOT Analysis: SWOT Analysis Opportunities ‘Open skies’ between US and UK Predict growth in Europe market Threats Economic weakness SARS Middle East developments Price competition with other airlines in Europe Financial Ratio: Financial RatioFinancial Data: Financial Data Total Revenue=$12,147 i by 7.8% Total Expense=$7616 i by 10.21 Net Income=$72 h by 2.39 Net asset=$3,592 h by 3% Earnings per share=6.7 Operating margin=3.8% h by 5.1 pts Net debt/total capital ratio=60.7% i by 5.3 ptsOperating Data: Operating Data RPK= £100,112 h by 5.8% ASK= £139,132 i by 0.9% Passenger Load Factor=71.9 h by 1.5% RTK= £14,213 i by 2.9% ATK= £21,328 i by 6.7% Overall Load Factor=66.6 h by 4% Passengers Carried(000)=38,019 i by 5% Tonnes of Cargo Carried(000)=764 h by 1.2%Stock Valuation: Stock Valuation 1 Year Price Chat 1year price range: £85.00 - £215.75 Today’s stock price: £224 Stock Valuation: Stock ValuationBalance Sheet: Balance Sheet Total Asset=12900 Current Asset=2725 Total Liabilities=10626 Current Liabilities=2904 Total Shareholder Equity=2274Income Statement: Income StatementRevenue Composition: Revenue CompositionCost Structure: Cost StructureProfits Over 5 Years: Profits Over 5 YearsEarnings Per Share Over 5 Years: Earnings Per Share Over 5 YearsCash Flow Statement: Cash Flow Statement Cash and Cash Equivalents ( Net cash inflow for capital expenditure and financial investment + Net cash inflow/(outflow) for acquisitions and disposals = Cash used in financing) British Airways: British Airways Fleet Valuation Avg Fleet age(yrs): 7.5 Avg Life (yrs): 25 Depreciation Method: Straight-Line Avg Salvage Value: 0 Net MVA vs Mkt Cap: Net MVA vs Mkt Cap Net MVA vs Mkt Cap Est fleet value = 21US B Current assets =2.725 B Total debt =5.149 B Net MVA =18.57US B vs Mkt cap=2.425B Therefore, the assets are……undervaluedRecommendation: Recommendation Good News Improved net income Increased cash inflow Reduced net debt Decreased operating costs Recommendation: S-T: buy Bad News Decreased in revenue Downturn in passenger demand Assets undervalued L-T: holdDelta AirlinesU.S. Carrier: Delta Airlines U.S. Carrier Nov. 5 / 03 Stock Price: $12.89Background Information: Background Information Founded – 1924 Headquarters: Atlanta, Georgia CEO: Leo F. Mullin Employees: 70,000+ Daily Flights + Partners: 6,130 Destinations: 453 cities in 82 countriesStrategies: Strategies Build adequate liquidity Significant reduction in costs Become more competitive in the “low-fare” sector Song, a highly competitive, wholly owned subsidiaryCompetitors / Alliances: Competitors / Alliances Competitors American Airlines United Airlines International Airline companies (minimal) Alliances Atlantic Southeast Airlines Comair, Inc. Other Delta connection carriers Skyteam Alliances Codeshare partnersSWOT: SWOT Strengths Well positioned hub networks Partners & Alliances Good Employee Relations Technological Innovation Weaknesses Lower fairs due to high competition Less demand due to 911 Higher Expense Map of Hub Network: Map of Hub NetworkSWOT Analysis: SWOT Analysis Opportunities Boston airport terminal project More international flights and coverage Threats Low-fare airline companies Demand for air travel does not increaseBalance Sheet - Assets: Balance Sheet - AssetsBalance Sheet - Liabilities: Balance Sheet - LiabilitiesFleet / Net MV Assets: Fleet / Net MV AssetsNMV Asset Evaluation: NMV Asset Evaluation Total Market Value of Owned Fleet (in millions) $14186 Less: Total LT Debt 9576 Add: Current Assets 3902 Total NMV of Assets (Not including investments) $8512 Delta’s market capitalization is sitting at 1.65 billion, which is less than total NMV of assets which sits at 8.5 billion. This shows that Delta’s equity is undervalued. Income Statement - Revenue: Income Statement - RevenueRevenue Allocation (2002): Revenue Allocation (2002)Income Statement - Expense: Income Statement - ExpenseSlide84: Expense Allocation (2002)Earnings Trend: Earnings Trend Operating Income Net IncomeEPS Trend: EPS TrendCash Flow Statement: Cash Flow Statement Net Cash from Operations $285 Less: Net Cash from Investments (1109) Add: Net Cash from Financing 583 Net Cash Inflow / Outflow $1977 Major Changes Operations – Flight equipment less spending (2321) (922) Investing – Boston Airport Terminal (485) 58 Financing – Short Term Obligations 701 (1144)Ratios: RatiosOperating Data: Operating DataStock Valuation: Stock Valuation Delta Air Lines (NYST: DAL)Stock Price Chart: Stock Price ChartRecommendation: Recommendation Undervalued according to NMV assets High market share No dividends & negative earnings Very volatile industry Hold – Moderate BuySlide93: Today’s stock price: S$12.50 Exchange rate: S$1 to US$0.57 Background: Background Found in Oct. 1972 Separated from Malaysian Airways Started from 10 aircrafts flying 22 cities Right now, spans over 90 cities globally with about 95 aircrafts Singapore government owned 57% of shares Background con’t: Background con’t Ranking in 2002 World 4th largest airline in RPK World 2nd largest airline in freight carried Alliances: Alliances Equity partner acquired 49% shares of Virgin Atlantic Airways in March 2000 Star Alliances Joined in April 2000, become 11th members with such as Air Canada, United Airline, Lufthansa, Thai Airline, ANA Airways. Competitors: Competitors Cathay Pacific Japan Airlines Malaysian AirlinesSWOT Analysis: SWOT Analysis Strengths: Low debt (debt to equity traditionally <0.1) Encourage employees’ motivation Profit-sharing program Young aircraft , average age of 5 years old Excellent in-flight services e.g.: free drinks, complimentary headsets…SWOT Analysis con’t: SWOT Analysis con’t Weakness: Relied on long haul flight Located in SARS outbreak area SWOT Analysis con’t: SWOT Analysis con’t Opportunities: Work with partners Demand increase Competitors’ struggle SWOT Analysis con’t: SWOT Analysis con’t Threats: Global economic weakness SARS comeback again Fuel cost increase terrorismStrategies: Strategies Cost cutting No-pay leave Wage cuts Reduction in staff Less flying allowance paid Postpone profit-sharing bonus Assets selling sold 5 Pratt and Whitney engines finance corp. Strategies con’t: Strategies con’t New route developing Bangalore Shenzhen L.A. Re-Fleeting plans Combination of Air-Bus and Boeing Price cutting, promotion, flights adding Balance sheet: Balance sheetEarning per share: Earning per shareOperating profit: Operating profitCost structure: Cost structureIncome statement: Income statementIncome statement con’t: Income statement con’tCash flow statement: Cash flow statementOperating data: Operating dataOperating data con’t: Operating data con’tOperating data con’t: Operating data con’tRatios: Ratios Stock valuation: Stock valuation Ticker: SIAL.SI Trade in Singapore Stock Exchange Shares issued (as at 30SEP03): 1.22B Stock valuation con’t: Stock valuation con’t5-year price chart: 5-year price chart1-year price chart: 1-year price chartRecommendation: Recommendation Moderate Buy Good management Recover so fast Low debt Volatile stock, but upward trend You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.