J.P. 摩根-美股-航空航天业-二季度美国航空业总结-2019.7.29-31页.pdf

North America Equity Research29 July 2019Equity Ratings and Price TargetsMkt CapRatingPrice TargetCompanyTicker($mn)Price($)CurPrevCurEnd DatePrevEnd DateAmerican AirlinesAAL US13,697.3430.74OWn/c40.00Dec-19n/cn/cDelta Air Lines,Inc.DAL US40,723.9262.46OWn/c78.00Dec-1970.00n/cUnited Airlines Holdings IncUAL US24,425.2293.44OWn/c110.00Dec-19107.00n/cSouthwest Airlines Co.LUV US28,660.9652.88UWn/c52.00Dec-1951.00n/cAlaska Air Group,Inc.ALK US7,951.5363.97OWn/c76.00Dec-1972.00n/cJetBlue Airways Corp.JBLU US5,866.9919.44Nn/c21.00Dec-19n/cn/cSpirit AirlinesSAVE US2,907.4342.37OWn/c54.00Dec-1972.00n/cSource:Company data,Bloomberg,J.P.Morgan estimates.n/c=no change.All prices as of 29 Jul 19.US Airlines2Q Wrap;SAVE OW reiterated,and no,we dont fear the MAX returnAirlines&Aircraft Leasing/EquityJamie Baker AC(1-212)622-Bloomberg JPMA BAKER J.P.Morgan Securities LLCAbdul Tambal,CFA(1-212)622-J.P.Morgan Securities LLCKaran Puri(91-22)6157-J.P.Morgan India Private LimitedSee page 28 for analyst certification and important disclosures,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 this report as only a single factor in making their investment decision.Earnings season covered a broader spectrum of themes than we anticipated.As expected,guides were broadly in-line,MAX-timing was aligned closer to the J.P.Morgan view,the industry continued to demonstrate margin expansion superior to theS&P 500,and Southwest steered clear when pressed on M&A.On the other hand,Spirits guide(and share price correction)was meaningfully worse than anything we had pondered,and Southwest commentary regarding spilling traffic and helping its competitors has stoked fears of post-MAX fare wars.While that last point may potentially cast a pall over equities in the immediate term,we remain confident in the industrys post-MAX earnings prospects and the potential ability for stocks to punch through yr/yr RASM declines,albeit with certain caveats which apparently puts us at odds with a growing number of our competitors.We dont fear the post-MAX environment J.P.Morgan remains of the view that the MAX will return in early 2020,and lead to sizable observations of yr/yr domestic capacity,particularly in the second half.But wed offer the following observations:First,said aircraft are already loaded and selling,as opposed to representing capacity that will suddenly be dropped out of nowhere on consumers doorsteps.Second,MAX-impacted airlines,particularly Southwest,are deliberately spilling the lowest yields when cancelling flights(for this is what airlines do).Inother words,the“help”Southwest is giving its competitors actually translates into incremental RASM for Delta that is below Deltas average RASM.Therefore,next years recapture of low-yielding passengers by Southwest doesnt require aggressive discounting of higher-yielding(i.e.corporate)fare categories.Third,the industry is already bolstering pricing in non-Discounter markets,as evidenced by a Big Three$5 one-way fare increase last weekend.We also believe equities can punch through negative RASM optics Were sensitive to investors aversion to RASM declines and the difficulties equities have had in the past when confronted by such.But theres a simple solution:think sequentially.Industry RASM typically declines about 2.5%from the second quarter to the third.Its wholly plausible that the industry could witness a 1%seasonal decline next year,which would be evidence of improving demand trends,yet still post a yr/yr RASM decline.Put differently,we believe the market can look beyond the optics of RASM declines if core demand is accelerating,margins are expanding,and earnings are growing.Our point is that negative RASM-in and of itself-is not necessarily a measure of worsening demand trends.2North America Equity Research29 July 2019Jamie Baker(1-212)622- Other than that,earnings season was fairly successful Demand trends appear increasingly solid.Pretax margins are expanding for both MAX and non-MAX operators.Fuel prices are proving salubrious.Earnings growth is nicely ahead of that of the S&P 500 ex-financials,as is free cash flow.Our earnings models didnt require any major overhauls,and our models are yours for the asking.Unless youre Spirit The glaring outlier was Spirit this season,which shed close to 24%of its value last Thursday(vs.a 0.5%decline in the SPX)on a material cost miss and ensuing collapse in consensus.Three competitor rating cuts have also reduced its Buy percentage to below 50%for the first time since early 2018.Perhaps at this point,bullish analysts(a camp we inhabit)would step in to aggressively defend the company and/or its business model.Not us.Aside from the Ft Lauderdale runway closure,the companys cost challenges are of its own design.And while the pursuit of efficiency and profitability is a laudable goal,we cant help but wonder if the companys network gyrations are partially a function of the broader industry putting them on the run.We remain of the view that Basic Economy is a secular competitive threat to ULCCs(though not of an existential variety),and that theULCC operating model is best deployed into markets comprised of frail competitors.Furthermore,if“low costs”are part of ones operating mantra but cost control provesmore tenuous than believed and if theres the risk of losing close to a quarter of ones investment on a cost single hiccup.does that really argue in favor of rich earnings multiples?We can only go where our model takes us,Overweight rating reiterated We have substantially diminished our Spirit forecasts.2019 from$6.17 to$5.58,and 2020 from a Street-high$7.20 to$6.00.We have also reduced our target multiple from 10 x to 9x,to better reflect the equitys underlying volatility.But we see no reason to muster a downgrade.For illustrative purposes,our model would have to bring us towards a$5 earnings outcome for 2020 for us to lose interest at current levels,assuming a 9x target multiple.But it cant(see Figure 1).Well,actually it can,but not assuming inputs that we consider credible.We do believe the company has kitchen-sinked its cost guide for the remainder of this year,and can better control ex-fuel CASM next year(were assuming+1.3%in 2020,following 4.7%this year).We also believe the company can achieve slightly positive RASM in2020,were assuming 1.5%following 1.9%this year.Hence,while our PT is materially reduced from$72 to$54,we still see considerable value in current shares trading at merely 7.6x our forecast,and strongly reiterate our Overweight rating.3North America Equity Research29 July 2019Jamie Baker(1-212)622-SummaryTable 1:Our December 2019 price target revisions are slight,save for Spirit.Source:Bloomberg,J.P.Morgan estimates.Prices as of July 26,2019.Table 2:similarly,our 2019 earnings estimates dont change by much(ex-SAVE).Source:Bloomberg,J.P.Morgan estimates.Prices as of July 26,2019.Table 3:with a continued them for 2020 earnings estimates.Source:Bloomberg,J.P.Morgan estimates.Prices as of July 26,2019.“Were spilling traffic and leaving money on the table and helping our competitors.And I will also tell you that is not anything that we will leave unattended.”Earnings season concluded last Thursday with commentary from Southwests CEO that was ominously interpreted by many to portend post-MAX pricing aggression.That was not our interpretation.Granted,we can sympathize with Southwests angst regarding the MAX situation.Here is an airline singularly-constructed around the 737 family and hard-wired for growth that is being forced to manage ever-increasing capacity declines as non-MAX aircraft exit its fleet.Meanwhile,its Airbus-enabled low fare competitors are free to continue growing.Frankly,we question whether this could potentially re-grease the wheels of consolidation,given Southwests active role in that process throughout its history.We do believe the MAX situation lends itself to a discussion on consolidation;Southwest needs AirlineNewOld JPM New PT JPM Old PT Current Price PT%Change JPM Upside%AAL-O$40.00$40.00$30.710%30%ALK-O$76.00$72.00$63.736%19%DAL-O$78.00$70.00$62.4011%25%JBLU-N$21.00$21.00$19.320%9%LUV-U$52.00$51.00$52.872%-2%SAVE-O$54.00$72.00$42.35-25%28%UAL-O$110.00$107.00$93.493%18%RatingsJPM Equity Price Targets/Ratings2019eNewOld%changeConsensusAAL$4.91$5.08-3%$5.06ALK$6.29$6.34-1%$5.86DAL$7.29$7.034%$7.07JBLU$2.14$2.045%$2.00LUV$4.14$4.45-7%$4.39SAVE$5.58$6.17-10%$5.38UAL$12.14$11.228%$11.652020eNewOld%changeConsensusAAL$6.00$5.990%$5.74ALK$7.60$7.620%$6.97DAL$8.20$7.756%$7.45JBLU$2.50$2.54-1%$2.45LUV$5.20$5.35-3%$5.23SAVE$6.00$7.20-17%$6.02UAL$13.00$12.603%$12.554North America Equity Research29 July 2019Jamie Baker(1-212)622-aircraft(it has said so),Southwest needs to diversify its fleet away from the 737(our opinion),Southwest once tried to purchase an Airbus operator(a statement of fact),any deal involving Southwest would likely involve eliminating baggage and other pesky fees for tens of millions of passengers(our view,and one we can envision the DOJ embracing).Lastly,Spirits share price has declined by 23%in just the past week.However,our prodding on this topic was deftly dismissed by management during its call,hence near-term M&A is probably not the leading probability,in our view.Which brings us back to the MAX.First off,J.P.Morgan remains of the view that the MAX will return to service in early 2020(and weve removed Nov/Dec 2019 flying from our AAL/UAL models,whereas no adjustments were required for LUV).And we readily admit that domestic capacity growth measured yr/yr,will accelerate as 2020 progresses and may reach higher than 7%in the second half.We further accept that the optics of yr/yr RASM will suffer as a result.But we strongly disagree with growing sellside(and buyside)sentiment that Southwest will play an incrementally aggressive pricing role when its MAX aircraft are returned to service.For starters,MAX flights are already loaded and selling beyond January 5th.This represents capacity that had long-been planned.Granted,economic trends could worsen next year and burden the industry with excess capacity,but its not as if an unanticipatedwall of aircraft is about to wash over the shores of unsuspecting domestic passengers.Rightly or wrongly,its always been out there and is unaffected by the MAX grounding save for the resulting yr/yr growth rates.Second,MAX airlines are being judicious about the demand thats being spilled to non-MAX competitors,such as Delta.Its a basic tenet of airlining:when thinning flights,spill your lowest yield while protecting the highest.According to the entirety of our channel checks,thats whats happening at Southwest.In fact,we estimate that any domestic RASM Delta has picked up at Southwests expense has actually been dilutive,coming at levels below Deltas average domestic RASM.This implies that next years planned recapture of low-yielding passengers by Southwest wont require aggressive discounting of higher-yielding(i.e.corporate)fare categories.Theres simply no reason we can identify for Southwest to go rogue across its pricing spectrum.We also note that the industry also continues to take price in non-Discounter markets,as evidenced by a successful$5 one-way fare increase put in place by American,Delta&United last weekend,in the entirety of domestic markets that lack Discounter presence.We estimate these markets/fare categories represent approximately35-40%of domestic revenue production,given Discounters skew towards larger,established markets.We arent any more worried than usual regarding 2020 RASMLets start by saying we always worry about RASM,and were sensitive to investors aversion to yr/yr RASM declines and the difficulties equities have had when confronted by such.Think 2015/2016.And we wholeheartedly expect yr/yr domestic capacity measures,particularly in the second half of next year,to weigh on yr/yr RASM.But theres a simple solution to this:think sequentially,and define RASM quality appropriately.In our minds,the best RASM in 2020 is one that allows the industry to expand margins,grow earnings,and permit the continued return of capital to shareholders.Would positive yr/yr RASM accomplish that goal?Quite possibly.Could negative yr/yr RASM still accomplish that goal?Yes,in our view.5North America Equity Research29 July 2019Jamie Baker(1-212)622-RASM is seasonal.Industry RASM typically softens by about 2.5%from the second quarter to the third.It typically firms by a similar degree from the third quarter to the fourth.Its wholly plausible that the industry could witness a 1%seasonal decline 2Q to 3Q next year,which would be 150 basis points better than average and point to incrementally strengthening demand trends.Yet this could still result in a yr/yr RASM decline.Simply put,we believe the market can and will potentially look beyond the optics of RASM declines if core demand is accelerating,margins are expanding,and earnings are growing.This in and of itself is not an assured outcome,but it is wholly unrelated to the fact that MAX aircraft are currently grounded.Negative RASM is not necessarily a measure of worsening demand trends.Figure 1:For Spirit,we couldnt get comfortable with assumptions that lead us to just$5 in EPS.Source:Company reports,J.P.Morgan estimates.Figure 2:Airline Pretax Margin Expansion vs.S&P 500(ex financials)shows continued momentum.Source:Company reports,Bloomberg,J.P Morgan estimates.2020 RASMEPS-1.0%-0.5%0.0%1.0%1.5%2.0%2.5%0.3%$5.04$5.30$5.55$6.06$6.32$6.57$6.830.8%$4.89$5.15$5.40$5.91$6.16$6.42$6.681.3%$4.73$4.98$5.24$5.75$6.00$6.26$6.521.8%$4.58$4.84$5.09$5.61$5.86$6.12$6.372.3%$4.43$4.69$4.94$5.45$5.71$5.67$6.222.8%$4.28$4.53$4.79$5.30$5.56$5.81$6.072020 CASM ex-1000bps-800bps-600bps-400bps-200bps0bps200bps400bps1Q172Q173Q174Q171Q182Q183Q184Q181Q192Q193Q19EPretax Margin Expansion(bps YoY)SPX(ex-financials)US AirlinesMajorsLCCs6North America Equity Research29 July 2019Jamie Baker(1-212)622-Figure 3:Airlines EPS Growth vs.S&P 500(ex financials)continues to beat the market.Source:Company reports,Bloomberg,J.P Morgan estimates.Figure 4:Airlines FCF Growth vs.S&P 500(ex financials)Source:Company reports,Bloomberg,J.P Morgan estimates.-60.0%-40.0%-20.0%0.0%20.0%40.0%60.0%80.0%100.0%1Q162Q163Q164Q161Q172Q173Q174Q171Q182Q183Q184Q181Q192Q19EPS Growth(%YoY)SPX(ex-financials)US AirlinesMajorsLCCs-400.0%-200.0%0.0%200.0%400.0%600.0%800.0%1Q172Q173Q174Q171Q182Q183Q184Q181Q192Q19FCF Growth(%YoY)SPX(ex-financials)US Airlines7North America Equity Research29 July 2019Jamie Baker(1-212)622-Figure 5:Contrary to whats been suggested,American is not adding capacity in United domestic overlap markets.Source:Company reports,Bloomberg,J.P Morgan estimates.5.0%2.8%-6.6%1.6%2.6%-5.1%-1.6%-1.5%-8.0%-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%1Q182Q183Q184Q181Q192Q193Q19e4Q