J.P. 摩根-美股-航空业-2019年三季度美国航空业总结：ALK降级JBLU评级上调-2019.10.28-34页.pdf

North America Corporate Research28 October 2019Equity Ratings and Price TargetsMkt CapRatingPrice TargetCompanyTicker($mn)Price($)CurPrevCurEnd DatePrevEnd DateAlaska Air Group,Inc.ALK US8,879.4871.57NOW76.00Dec-2079.00n/cAmerican AirlinesAAL US13,652.4930.86OWn/c43.00Dec-2040.00n/cDelta Air Lines,Inc.DAL US35,380.8054.60OWn/c78.00Dec-20n/cn/cJetBlue Airways Corp.JBLU US5,551.0818.76OWN24.00Dec-2023.00n/cSouthwest Airlines Co.LUV US30,299.1656.74UWn/c54.00Dec-2058.00n/cSpirit AirlinesSAVE US2,599.9137.93OWn/c51.00Dec-20n/cn/cUnited Airlines Holdings IncUAL US23,523.9991.64OWn/c123.00Dec-20122.00n/cSource:Company data,Bloomberg,J.P.Morgan estimates.n/c=no change.All prices as of 25 Oct 19.US Airlines3Q Wrap;ALK downgraded,JBLU upgraded;sentiment improving Airlines&Aircraft Leasing/EquityJamie Baker AC(1-212)622-Bloomberg JPMA BAKER Abdul Tambal,CFA(1-212)622-J.P.Morgan Securities LLCSee page 32 for analyst certification and important 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.Sentiment was already on the mend,in our view,but earnings season provided another shot in the arm:AAL came out swinging,JBLU offered RASM reassurances,LUV wasnt shy about its cost challenges,and SAVE guided up,to name a few.Most importantly,domestic capacity sentiment(since outcomes remain far from certain)improved given further MAX delays and plans for a more tempered return to service than many had feared.But economic uncertainty still remains,so weve also updated our recessionary analysis;it looks OK,but not as strong as in 2016.Turning to ratings,ALKs surge towards our$76 target has left limited forecasted upside potential,which nudges our rating from Overweight to Neutral.Meanwhile,JBLU still far from a sell-side favorite is now expected(by us)to limp across the$2.50 earnings line in 2020.Even when coupled with our second lowest target multiple,upside potential to our JBLU target price of$24 exceeds 25%,lifting our rating to Overweight.ALK downgraded to Neutral We have more confidence in ALKs ability to expand margins in 2020 than we do JetBlues ability to exceed$2.50 in earnings.We have more confidence in ALKs ability to maintain positive RASM than we do JetBlues.Forecasted execution risk appears lower at ALK,given JBLUs fleet transition and transatlantic ambitions.But it doesnt look like were alone with these views,as evidenced by ALKs 2.5x P/E premium to JetBlue,In fact,ALK shares have surged to the second-highest valuation in our coverage universe,even on our consensus-topping forecasts.We believe the time to take profits has arrived,as evidenced by the paucity of forecasted upside potential to our$76 target.JBLU upgraded to Overweight 2.3%TRASM,-0.7%ex-fuel CASM and$2.10/gallon fuel are the salient metrics that achieve our improved$2.67 forecast for 2020,limping into managements recently-affirmed$2.50$3.00 range where few others reside(consensus remains a stubborn$2.38).Of the aforementioned drivers,we have the most confidence in the ex-fuel CASM outcome,which is a sharp reversal from how weve viewed the company over the years.And JBLU is far from an analyst favorite,as evidenced by the highest%of“sells”in our universe(and the second-fewest“buys”after SAVE).Best of all,our second lowest target P/E(8x,only AAL is lower)implies attractive upside potential,in our view,and suggests investors are being adequately compensated for RASM uncertainty,execution risk,and a network prone to chronic meteorological disruption.2North America Corporate Research28 October 2019Jamie Baker(1-212)622- Capacity sentiment appears better MAX-related capacity concerns drove the majority of investor pushback since mid-summer,in our view.And capacity outcomes remain highly fluid,given uncertainty around MAX RTS(return to service)and the fact that published schedules become analytically unreliable after about the four month mark.Discounters havent even published summer plans yet,so theres nothing to analyze there in the first place.But we do know the following:Southwest has assured investors that double-digit growth is out of the question,American surprised many with a 5%consolidated system guide(which is heavily MAX-centric),Alaska has indicated just 3.5%in 2020(and a more measured 4-6%long-term CAGR,down from one-time 8%ambitions),and all three U.S.MAX operators have indicated gradual phase-ins,with a healthy anticipated lag between re-certification and first revenue flight(i.e.2 months for LUV).Domestic capacity still remains an overhang,in our opinion,but one that has recently pivoted from causing significant pessimism to cautious optimism.A word on American FCF We were pleased that AAL exhibited renewed vigor on its earnings call we can envision management standing instead of sitting,they sounded that much better to us pivoting the spotlight towards deleveraging and improving free cash flow in coming years.“$2.5 billion in 2020 FCF even at flat earnings”made for an attractive if curious headline,in our view.We cant get there,at least not comfortably.Specifically,Americans forecast includes roughly$1.1 billion of anticipated sale-leaseback proceeds,which we exclude and would strenuously hope other airlines do as well.The good news is that were forecasting 2020 EPS of$5.99,so clearly something better than flat.But our FCF estimate stops slightly short of$2 billion,though rises to$3.3 billion in 2021.Nobodys asking here,but they are asking in Europe.Thoughts on flygskam The topic of flight shaming in response to increasing environmental angst has not become part of the North American investment narrative,but it is garnering significant attention amongst Europeans.In our minds,its more a question of“when”rather than“if”the topic gains traction.Granted,its been decades since the industry witnessed any meaningful disruption,with the internet being the last such Uber-like structurally disruptive calamity(video conferencing was merely a ripple,in our view).But flygskam may prove challenging.If one assumes that short-haul markets are at greater risk,wed point out that 19%of LUV ASMs and 42%of its departures are in 500 mile markets,where automotive substitution might prove realistic except it doesnt appear that driving from Austin to Dallas would be any more eco-friendly than flying.And,according to our analysis,theres a meaningful dearth of O&D markets in the U.S.where sailboat-alternatives currently exist.At present,our models are unadjusted,but we question how many earnings seasons can pass before this topic receives attention.We thought it prudent to dust off our recessionary analysis Our deliberately-dire analysis makes several assumptions:a)revenue contraction is consistent with prior downturns,b)the recession lasts four consecutive quarters,c)fuel prices do not moderate,and d)no efforts are taken to bolster profitability(an extreme scenario).What this ignores is a)revenue trends have grown more resilient given contribution from loyalty and ancillary fees,b)most recessions dont last a year,c)we actuallybelieve fuel prices would fall,and d)theres little chance of management doingnothing to combat a downturn.3North America Corporate Research28 October 2019Jamie Baker(1-212)622- The good news is we continue to believe in a profitable recession However,in contrast to our 2016 analysis which was conducted at lower fuel prices and ahigher starting point for margins American is forecasted to lose money and other airlines(like JBLU&SAVE)only marginally achieve profitability.We calculate operating margins ranging between flat at AAL and+6 to 7%for DAL and LUV.On an EPS basis,this equates to a$1.23 loss for AAL,$1.17 profit for UAL,$1.89 profit for Southwest,and$3.08 profit for DAL.We remain of the view that final recessionary profits would potentially prove better than our forecasts.But we prefer our stress-test begins with an“its not different this time”thesis,from where we can then work north with mitigating assumptions(i.e.cheaper fuel,capacity cuts,layoffs,etc.).Tis the season There remains a seasonality to airline investing.A strategy of buying equities at their autumnal lows(Sep/Oct)and holding them until their vernal highs(Apr/May)has yielded significant potential gains relative to the S&P 500 over the past twelve years.But thats just shorthand for“buy low,sell high.”We also look at the sub-optimal trade;buying at the high and selling at the low.For Delta,this strategy has yielded an average maximum relative gain of 39%,and an average maximum relative loss of-11%.So,using only the calendar,and assuming random exit and entry points,the seasonal DAL trade would have resulting in a return somewhere between-11%and+39%;not too shabby,in our opinion.For United,its been between-11%and+50%.For 2019,the trade appears off to a reasonable start,given autumnal lows already appear to have been achieved several weeks ago(barring any catastrophe between now and October 31st).For example,AAL,ALK&JBLU have already rallied around 15%relative to the S&P 500 from their respective lows.Seasonality should never be the sole basis for investing in airlines,in our view,but we felt we would be remiss if we didnt at least remind investors of this time-tested analysis.Its no D3030,but we think its pretty compelling.4North America Corporate Research28 October 2019Jamie Baker(1-212)622-SummaryTable 1:Our December 2020 price target revisions are slight,but we changed two ratingsSource:Bloomberg,J.P.Morgan estimates.Table 2:Our 2020 earnings estimates are above consensus,except for SouthwestSource:Bloomberg,J.P.Morgan estimates.Table 3:and the same is true of our 2021 earnings estimatesSource:Bloomberg,J.P.Morgan estimates.Sentiment and interest appear to be improvingMore inbound calls and emails.A handful of requests for industry primers.An appreciable decline in outright hostility towards airline stocks,in our view.While it may not be much,the current environment stands in stark but welcome contrast to the paucity of investor interactions we were conducting just a month ago(let alone during the very quiet summer).Seasonality may be part of it(keep reading).Declining-though-still-significant economic pessimism is believed to be contributing.But we believe the core catalyst behind growing investor interest(and recent share price appreciation)is waning fear of a domestic capacity tsunami once the 737 MAX returns to the skies as well as 4Q guides that were mostly cheered by the market during the now-completed earnings seasons.AirlineNewOld JPM New PT JPM Old PT Current Price PT%Change JPM Upside%AAL-O$43.00$40.00$30.868%39%ALK NO$76.00$79.00$71.57-4%6%DAL-O$78.00$78.00$54.600%43%JBLUON$24.00$23.00$18.764%28%LUV-U$54.00$58.00$56.74-7%-5%SAVE-O$51.00$51.00$37.930%34%UAL-O$123.00$122.00$91.641%34%JPM Equity Price Targets/RatingsRatings2020eNewOld%changeConsensusAAL$5.99$5.1217%$5.27ALK$7.50$7.78-4%$6.95DAL$7.45$7.460%$7.07JBLU$2.67$2.3414%$2.39LUV$4.70$5.20-10%$5.03SAVE$5.30$4.957%$4.82UAL$13.19$13.001%$12.672021eNewOld%changeConsensusAAL$6.45$6.096%$5.94ALK$8.05$8.34-4%$7.58DAL$8.25$8.201%$7.69JBLU$3.00$2.855%$2.76LUV$5.40$5.85-8%$5.65SAVE$5.70$5.690%$5.59UAL$14.50$14.371%$14.395North America Corporate Research28 October 2019Jamie Baker(1-212)622-Figure 1:SAVE has the fewest“buy”ratings,but JetBlue is a close 2ndand has more“sells”Source:Bloomberg.We still dont have succinct capacity answersTo the chagrin of investors and analysts alike,accurate capacity forecasts can only be made in the immediate-to-near term(so,the current quarter,give or take).Discounters commonly file schedules only on a 4-6 month forward basis,and those airlines that dopublish up to twelve months tend to materially over-schedule,soak up bookings as best possible,and then thin their schedules as revenue trends and fuel forecasts come into view.Aircraft delivery schedules tend to be reliable,but lease returns and retirements are rarely shared.Management disclosures are helpful,but in no way binding.Simply put,capacity is a bit of a guessing game,in our view.It is our view that capacity sentiment notably improved during earnings season.MAX recertification at best appears to be a year-end event,in our view.Furthermore,the scope of the delay and accompanying operational complexity of returning planes to service suggest a more measured pace of reintroduction than we believe many investors feared the three U.S.operators(at the time of the grounding)have suggested the phase-in could take a couple of months.Meanwhile,Southwest assured investors that a double-digit 2020 growth rate wouldnt occur(and we had been assuming+12%),and American seemed to surprise some with a consolidated growth plan of merely5%.3.5%growth at Alaska is about what we expected,but the company also indicated a more measured 4-6%long-term CAGR,comparing favorablyto one-time ambitions in the 8%range.Simply put,our primary takeaway from earnings season is that capacity pessimism appears to have pivoted to capacity optimism.Suddenly,the tenor of investor conversations on this topic have become upbeat,in our opinion.Against this backdrop,two of our ratings have reversedStarting with Alaska,we continue to applaud management on the pace of deleveraging,industry-leading YTD margin improvement,and continued pursuit of 13-15%pre-tax margins through the economic cycle.But valuation has pulled ahead of nearly all others(LUV being the exception),even on our 2020/2021 forecasts that top consensus,which suggests our favorable views on Alaska are far from proprietary.And our 9.5x target multiple is currently topped only by our 10 x target on LUV.While ALK share price 0%10%20%30%40%50%60%70%80%90%100%ACUALDALALKAALLUVJBLUSAVESellsHoldsBuys6North America Corporate Research28 October 2019Jamie Baker(1-212)622-performance hasnt proven the singular best in 2019(that would be LUV,which we struggle to understand),its second half sprint to the upside has exceeded all others ex-AAL(with AALs whipsawing not for the faint of heart,in our view).Turning to JetBlue,the company recently affirmed its$2.50$3.00 EPS target for 2020,and specifically guided(and realisticallyso,in our view)to low-single-digit RASM improvement.Granted,we were already in the+3%range,but feedback from investors suggests our competitors were not.Combined with a lower fuel price assumption($2.10/gallon)and a few other modeling tweaks,our 2020 forecast rises from$2.34 to$2.67,taking up residence in the guided range where few others reside(as evidenced by the$2.39 consensus).What makes JetBlue the more compelling investment than Alaska from current levels,in our view,isnt absolute risk.We actually have more confidence in Alaskas ability to execute and maintain positive RASM in 2020 than JetBlues.And while JetBlues A220 fleet and aggrega