Airline valuations
Recovering from Covid
June 2021
According to the global stockmarkets, airline values, measured by stockmarket capitalisations, have just about recovered from Covid-19. Our survey of 23 stockmarket-quoted airlines (see table) shows that their total market capitalisation has fallen by $23.6bn or 9% since the beginning of 2020. Over the same time period there has been a 20% increase in the Dow Jones and a 34% growth in the S&P 500, both indices driven by tech stocks, while London’s FTSE 100, without the benefit of a large tech component, is down by 7%.
| Market Cap | ||||
|---|---|---|---|---|
| $bn | 1 Jan 2020 | 30 Jun 2021 | Pct Chg | Equity raised |
| Southwest | 27.9 | 31.5 | +13% | 2.3 |
| Delta | 37.9 | 28.0 | -26% | |
| Ryanair | 17.9 | 20.9 | +17% | 0.5 |
| United | 22.1 | 16.7 | -24% | 2.6 |
| American | 12.2 | 13.6 | +12% | 2.9 |
| China Southern | 10.5 | 11.2 | +7% | 2.1 |
| ANA | 11.2 | 11.1 | -1% | 2.7 |
| SIA | 8.0 | 10.7 | +34% | 10.9 |
| Air China | 13.3 | 10.5 | -21% | |
| IAG | 16.4 | 10.0 | -39% | 3.3 |
| China Eastern | 11.1 | 9.5 | -14% | |
| JAL | 10.5 | 9.5 | -10% | 1.7 |
| Alaska | 8.4 | 7.6 | -9% | |
| Lufthansa | 8.8 | 6.7 | -24% | 0.4 |
| Qantas | 7.8 | 6.6 | -15% | 1.1 |
| Cathay | 5.8 | 5.5 | -6% | 4.0 |
| JetBlue | 5.6 | 5.3 | -5% | 0.6 |
| easyJet | 7.2 | 4.7 | -34% | 0.5 |
| Wizz | 4.4 | 4.6 | +4% | |
| Allegiant | 2.8 | 3.3 | +21% | 0.3 |
| Spirit | 2.8 | 3.3 | +20% | 0.4 |
| Air France-KLM | 4.8 | 3.1 | -35% | 1.2 |
| AirAsia | 1.4 | 0.8 | -41% | 0.1 |
| Total | 258.6 | 235.0 | -9% | 37.5 |
There has been a wide variation in the value trends. A third of the airlines have seen their stockmarket value increase, and those by an average of 14%. Two thirds have seen a reduction in total value averaging -21%. Excluded from the list are the, surprisingly few, carriers that have gone into some form of bankruptcy (HNA, LATAM, for instance).
Equity has flowed into the industry from public and private sources. In total our selection of airlines have raised $37.5bn in new equity from shareholders and governments over the past eighteen months.
Partly because so much of their government aid has come in the form of loans rather than grants, the Legacy carriers in the US and Europe have on the whole been the worst affected. Delta, United, IAG, Lufthansa and Air France-KLM saw their equity values fall by an average of 30% from the level at the beginning of 2020.
IAG was particularly, and probably unfairly, hit with its market cap falling by 39% in dollar terms despite a successful deeply discounted rights issue of $3.3bn: but then it had had no real government aid of any form, and its shareholders (including Qatar Airways, aka the State of Qatar) were left to support out the premier network airline group in Europe.
Strangely, American Airlines has seen an increase in the total value of its shares. It also had a massive share issue, raising $2.9bn but this included convertible quasi-debt. Adding back capacity more quickly than the rest of the US industry, it is perceived to be more of a beneficiary of domestic US recovery than its Legacy peers.
In South East Asia, both Singapore Airlines and Cathay Pacific received strong government support from equity injections. In Singapore’s case Temasek, the state holding company and 55% shareholder, underwrote a deeply discounted rights issue to raise S$8.8bn ($6.5bn) in March 2020 — 115% of SIA’s then market capitalisation. This was effected through a 3-for-2 rights issue of new shares to raise S$6.2bn along with S$3.5bn nominal amount of mandatory convertible bonds (MCBs). The MCBs have a ten-year life, carry no coupon, are convertible (or redeemable) at the company’s option and can conveniently be treated as equity on the balance sheet. A further S$6.2bn MCBs were issued by rights in June 2021.
Singapore’s support of $10bn for its flag carrier provided it with equity, which contrasts with the German Government’s support of a similar amount for Lufthansa which loaded it with debt. SIA’s equity value is, remarkably, 34% higher than at the beginning of 2020.
Among the Chinese carriers, things are a bit more complicated (as usual). China Southern carried out a successful capital raising of $2.1bn and has seen its equity valuation rise: it, Air China and China Eastern are all state-owned and have parent companies whose financial position is opaque.
Persuasive growth stories and expectations of recovery in short haul and leisure have attracted strong investor interest. The market values of Southwest, Ryanair, Allegiant, Spirit and Wizz are all above early 2020 levels, despite parking most of their aircraft for long periods throughout the pandemic.
An LCC model is not necessarily a guarantee. AirAsia’s valuation has been battered, down 41%. Investors are clearly not yet buying its strategy of developing a “super-app” to turn itself from an airline to some form of e-retail group.
EasyJet is the other underperformer with its stockmarket valuation dropping by 34% since the beginning of 2020. Its value probably hasn’t been helped by its founder and major shareholder, Stelios Haji-Ioannou unloading stock, but, a more fundamental problem may be that investors now regard it as more of a Legacy than an LCC.
