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Global Airlines

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Global Airlines Industry - Raymond and Leo British Airways - Billy Delta Airlines - Trevor Singapore Airlines - Herman Presentation Agenda Airline Industry Overview ... – PowerPoint PPT presentation

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Title: Global Airlines


1
Global Airlines
  • Industry - Raymond and Leo
  • British Airways - Billy
  • Delta Airlines - Trevor
  • Singapore Airlines - Herman

2
Presentation Agenda
  • Airline Industry Overview
  • State of the Industry
  • Traffic and Economics
  • Regional Summaries
  • Analysis of
  • British Airways
  • Delta Airlines
  • Singapore Airlines

3
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

4
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5
State of Industry
  • Air Traffic Cycles
  • Long-term Trend

6
Air Travel Cycles
  • Annual negative world traffic growth
  • In 1991 and in 2001-2002

7
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 liberalization

8
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

9
Long-term Trend
10
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

11
Traffic and Economics
12
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
    23
  • Emerging economies, GDP growth may average over
    4

13
Forecast Cont
14
Regional Summaries
15
European Airline Industry
16
Companies
  • Company in focus British Airways
  • Others
  • Air France
  • KLM
  • Lufthansa
  • Virgin Atlantic

17
Source Air Transport Association
18
Industry Highlights 2002/03
  • Passengers
  • 13.8 millions reduction
  • Breakeven Load Factor
  • 69.4 compared to a 69.2 load factor
  • Profit
  • USD0.87 billions loss

19
Factors influencing the industry
  • SARS phenomenon
  • Iraqi War
  • Post 9/11 recovery phrase
  • External Shocks
  • Currency Appreciation
  • Security Insurance

20
Source Association of European Airlines
21
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, SkyTeam

22
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 growth

23
Trends
  • Slow recovery
  • Mature economies with low growth rates
  • Continuation of liberalization
  • Growing international networks
  • Rise of No-Frills carriers

24
Source Association of European Airlines
25
N. American Airline Industry
26
Companies
  • Company in focus Delta Airlines
  • Others
  • United Airlines
  • American Airlines
  • Southwest Airlines
  • Northwest Airlines

27
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)
  • USD12.1 billions loss

28
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 phenomenon

29
Source Air Transport Association
30
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
  • OneWorld

31
Regulatory Environment
  • Deregulations
  • Mature liberalization
  • Post 9/11 Financial Effect
  • Increase financial burden for airlines
  • Additional insurance costs
  • Increased tax burden

32
Source Air Transport Association
33
Source Air Transport Association
34
Trends
  • Slowly recovering
  • Mature economies with low growth rates
  • Low fares
  • Cost-cutting strategies
  • Efficient airline networks

35
Asian Airline Industry
36
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

37
Northeast Asia Cont
  • Fragmentation will continue
  • North America will remain popular
  • Europe continues to grow

38
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 interchange

39
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 Asia

40
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

41
Southwest Asia Cont
  • Traffic within Southwest Asia will average 8.7,
    one of the worlds highest
  • Encompasses several air travel markets
  • Middle class travels for business
  • Pilgrimage
  • Tourists and VFR

42
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

43
China Cont
  • Airline industry is modernizing
  • Airline consolidation
  • Infrastructure investment
  • Network and fleet rationalization
  • Participation in major alliances

44
Airlines Analysis
45
  • Stock Price 224
  • 11.68 US Dollar
  • (Nov 7, 2003)

46
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 East

47
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

48
British Airways
  • Main Competitors
  • Europe Market
  • Lufthansa and Air France are dominating the
    market
  • North America Market
  • United Airlines Delta are dominating the market

49
British Airways
  • Alliance
  • Oneworld alliance
  • 8 airline members
  • British Airways, Aer Lignus, American Airlines,
    Cathay Pacific, Finnair, lberia, LanChile and
    Qantas.

50
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

51
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

52
Financial Ratio
53
Financial Data
  • Total Revenue12,147 i by 7.8
  • Total Expense7616 i by 10.21
  • Net Income72 h by 2.39
  • Net asset3,592 h by 3
  • Earnings per share6.7
  • Operating margin3.8 h by 5.1 pts
  • Net debt/total capital ratio60.7 i by 5.3 pts

54
Operating Data
  • RPK 100,112 h by 5.8
  • ASK 139,132 i by 0.9
  • Passenger Load Factor71.9 h by 1.5
  • RTK 14,213 i by 2.9
  • ATK 21,328 i by 6.7
  • Overall Load Factor66.6 h by 4
  • Passengers Carried(000)38,019 i by 5
  • Tonnes of Cargo Carried(000)764 h by 1.2

55
Stock Valuation
  • 1 Year Price Chat
  • 1year price range 85.00 - 215.75
  • Todays stock price 224

56
Stock Valuation
57
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58
(No Transcript)
59
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60
Balance Sheet
  • Total Asset12900
  • Current Asset2725
  • Total Liabilities10626
  • Current Liabilities2904
  • Total Shareholder Equity2274

61
Income Statement
62
Revenue Composition
63
Cost Structure
64
Profits Over 5 Years
65
Earnings Per Share Over 5 Years
66
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)

67
British Airways
  • Fleet Valuation
  • Avg Fleet age(yrs) 7.5
  • Avg Life (yrs) 25
  • Depreciation Method Straight-Line
  • Avg Salvage Value 0

68
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 cap2.425B
  • Therefore, the assets areundervalued

69
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 hold

70
Delta Airlines U.S. Carrier
Nov. 5 / 03 Stock Price 12.89
71
Background Information
  • Founded 1924
  • Headquarters Atlanta, Georgia
  • CEO Leo F. Mullin
  • Employees 70,000
  • Daily Flights Partners 6,130
  • Destinations 453 cities in 82 countries

72
Strategies
  • Build adequate liquidity
  • Significant reduction in costs
  • Become more competitive in the low-fare sector
  • Song, a highly competitive, wholly owned
    subsidiary

73
Competitors / Alliances
  • Competitors
  • American Airlines
  • United Airlines
  • International Airline companies (minimal)
  • Alliances
  • Atlantic Southeast Airlines
  • Comair, Inc.
  • Other Delta connection carriers
  • Skyteam Alliances
  • Codeshare partners

74
SWOT
  • Weaknesses
  • Lower fairs due to high competition
  • Less demand due to 911
  • Higher Expense
  • Strengths
  • Well positioned hub networks
  • Partners Alliances
  • Good Employee Relations
  • Technological Innovation

75
Map of Hub Network
76
SWOT Analysis
  • Opportunities
  • Boston airport terminal project
  • More international flights and coverage
  • Threats
  • Low-fare airline companies
  • Demand for air travel does not increase

77
Balance Sheet - Assets
Period Ending Dec 31, 2002 Dec 31, 2001
Cash Cash Equivalents 1,969 2,210
Total Current Assets 3,902 3,567
Property Equipment 16,524 16,097
Other Assets 4,294 3,941
Total Assets 24,720 23,605
78
Balance Sheet - Liabilities
Period Ending Dec 31, 2002 Dec 31, 2001
Total Current Liabilities 6,455 6,403
Non-current Liabilities 16,530 12,349
Total Liabilities 22,985 18,752
Common Stock 271 271
Retained Earnings 1,639 2,930
Accumulated income (loss) (1,562) 25
Total Equity 893 3,769
79
Fleet / Net MV Assets
Aircraft Type Owned Capital Lease Operating Lease Total Average Age
B-727-200 18 - 3 21 23.5
B-737-200 - 42 10 52 17.8
B-737-300 - - 26 26 16.1
B-737-800 71 - - 71 2.2
B-757-200 77 3 41 121 11.3
B-767-200 15 - - 15 19.6
B-767-300 4 - 24 28 12.9
B-767-300ER 51 - 8 59 6.9
B-767-400 21 - - 21 1.8
B-777-200 8 - - 8 2.9
MD-11 8 - 7 15 8.9
MD-88 63 - 57 120 12.5
MD-90 16 - - 16 7.1
EMB-120 29 - - 29 11.8
ATR-72 4 - 15 19 8.5
CRJ-100/200 73 - 122 195 3.7
CRJ-700 15 - - 15 0.3
Total 473 45 313 831 9.0
80
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

Deltas 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
Deltas equity is undervalued.
81
Income Statement - Revenue
Period Ending Dec 31, 2002 Dec 31, 2001
Passenger 12,321 12,964
Cargo 458 506
Other 526 409
Total Operating Income 13,305 13,879
82
Revenue Allocation (2002)
83
Income Statement - Expense
Period Ending Dec 31, 2002 Dec 31, 2001
Salaries 6,165 6,124
Aircraft Fuel 1,683 1,817
Depreciation 1,148 1,283
Contracted Services 1,003 1,016
Other Expenses 3,306 3,639
Total Operating Expense 13,305 13,879
84
Expense Allocation (2002)
85
Earnings Trend
Operating Income
Net Income
86
EPS Trend
87
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)

88
Ratios
Year 2002 Delta American United
Valuation Ratios
P/E Ratio N/A N/A N/A
P/BV Ratio 2.37 N/A N/A
Internal Liquidity
Current Ratio (MRQ) 0.798 0.712 0.783
Management Effectiveness
ROA (TTM) -3.28 -5.49 -16.26
ROE (TTM) -66.72 -351.26 N/A
Profitability Ratios
Profit Margin (TTM) -6.12 -9.60 -27.85
Operating Margin (TTM) -8.75 -7.56 -21.02
89
Operating Data
Year 2002 2001
Revenue Passenger Miles (mill) 102,029 101,717
Available Seat Miles (mill) 141,719 147,837
Passenger Load Factor 72.0 68.8
Breakeven Passenger Load Factor 79.0 77.3
Cargo Ton Miles (mill) 1,405 1,583
Fuel Gallons Consumed (mill) 2,514 2,649
Number of Aircraft in Fleet 831 814
Average Age of Aircraft (years) 9.0 9.1
Employees 75,100 76,300
90
Stock Valuation
Delta Air Lines (NYST DAL)
Last Trade 12.89
Trade Time Nov 5 / 03
Change -0.06 (0.46)
Prev Close 12.95
Open 12.95
Bid N/A
Ask N/A
1y Target Est 19.40
Days Range 12.68 13.04
52wk Range 6.56 16.05
Volume 2,421,300
Avg Vol (3m) 2,505,181
Market Cap 1.59B
P/E (TTM) N/A
EPS (TTM) -6.741
Div Yield N/A (N/A)
91
Stock Price Chart
92
Recommendation
Hold Moderate Buy
  • Undervalued according to NMV assets
  • High market share
  • No dividends negative earnings
  • Very volatile industry

93
  • Todays stock price S12.50
  • Exchange rate S1 to US0.57

94
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

95
Background cont
  • Ranking in 2002
  • World 4th largest airline in RPK
  • World 2nd largest airline in freight carried

96
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.

97
Competitors
  • Cathay Pacific
  • Japan Airlines
  • Malaysian Airlines

98
SWOT Analysis
  • Strengths
  • Low debt (debt to equity traditionally lt0.1)
  • Encourage employees motivation
  • Profit-sharing program
  • Young aircraft , average age of 5 years old
  • Excellent in-flight services
  • e.g. free drinks, complimentary headsets

99
SWOT Analysis cont
  • Weakness
  • Relied on long haul flight
  • Located in SARS outbreak area

100
SWOT Analysis cont
  • Opportunities
  • Work with partners
  • Demand increase
  • Competitors struggle

101
SWOT Analysis cont
  • Threats
  • Global economic weakness
  • SARS comeback again
  • Fuel cost increase
  • terrorism

102
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.

103
Strategies cont
  • New route developing
  • Bangalore
  • Shenzhen
  • L.A.
  • Re-Fleeting plans
  • Combination of Air-Bus and Boeing
  • Price cutting, promotion, flights adding

104
Balance sheet
105
Earning per share
106
Operating profit
107
Cost structure
108
Income statement
109
Income statement cont
110
Cash flow statement
111
Operating data
112
Operating data cont
113
Operating data cont
114
Ratios
115
Stock valuation
  • Ticker SIAL.SI
  • Trade in Singapore Stock Exchange
  • Shares issued (as at 30SEP03) 1.22B

116
Stock valuation cont
117
5-year price chart
118
1-year price chart
119
Recommendation
  • Moderate Buy
  • Good management
  • Recover so fast
  • Low debt
  • Volatile stock, but upward trend
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