瑞信-欧洲-航空行业-航空价值链洞察：航空公司提高利润率的努力给Amadeus带来了风险和机遇-2019.10.22-100页.pdf

AirLinks Value Chain Insights Airline efforts to boost margins present risks and opportunities for Amadeus Connections Series Travel Distribution|Strategy We update our thoughts on airline distribution strategies,and their impact on the global distribution systems(GDS;Amadeus Underperform,TP 56.89 in particular).We assess opportunities and risks as these strategies evolve:Slowing global capacity growth benefits airlines and hurts GDS:Slowing capacity growth should drive lower revenues for many value chain participants including the GDS(our Amadeus 2020E EBIT is 6%below consensus).Our top global airline picks include IAG(OP,TP 665p)and United Airlines(OP,TP$118).Early to judge fruits of new distribution strategies,but more work required and global partner alignment may be needed:New strategies present opportunities(each 1%in revenue is worth c.20%in profit for IATA NDC Leaderboard airlines,CSe).Next steps may need to include greater alignment of commercial strategies across global airline JVs to maximise revenue quality.Expanding low-cost carrier share threatens travel agent/GDS volumes market-influence and valuation questions likely to grow louder:We model global LCC seat share rising from 15%in 2009 to 24%in 2019 and 30-35%by 2024,which may prevent meaningful growth in agent/GDS volume,driving firmer questions on long-term market power as new entrants invest to disrupt.Amadeus opportunities in facilitating better retailing:We expect Amadeus to continue to upsell to airlines,with each 1%in group revenue worth 45m(4%)to earnings(CSe).Its New Business Unit(NBU)strategy continues to roll out and may mitigate risks from airlines strategic developments.Figure 1:Airlines priced for returns reset despite pursuing rev.quality upgrade;Amadeus priced for stability despite airline/competitor developments(%)Source:Company data,Credit Suisse HOLT -50510152025AmadeusAir France KLMeasyJetIAGLufthansa GroupRyanair2018 CFROIMarket implied CFROI22 October 2019 Equity Research Europe|United Kingdom DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES,ANALYST CERTIFICATIONS,LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS.US Disclosure:Credit Suisse 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.The Credit Suisse Connections Series leverages our exceptional breadth of macro and micro research to deliver incisive cross-sector and cross-border thematic insights for our clients.Research Analysts Neil Glynn,CFA 44 20 7883 6929 neil.glynncredit- Arthur Truslove 44 20 7883 1079 arthur.truslovecredit- Hannah Burrows 44 20 7883 0060 hannah.burrowscredit- Jose Caiado 212 325 6771 jose.caiadocredit- Lok Kan Chan 852 2101 6390 lokkan.chancredit- 22 October 2019 AirLinks Value Chain Insights 2 Key charts structural airline shifts,GDS reacting Figure 2:Industry ROIC regressing towards cost of capital;illustrating the need for higher structural revenue quality Figure 3:LHA the earliest mover in new distribution strategy not yet(obviously)helping pricing(underperforming peers on unit revenue)Source:IATA data Source:Company data,Credit Suisse research Figure 4:Consolidation has driven structural margin gains;partner rev.generation/distribution strategies should help Figure 5:Slowing global capacity and traffic growth a short-term threat to the GDS and Amadeus 2019E net debt/EBITDA at leading global carriers Source:Delta Air Lines 2018 Investor Day,Credit Suisse research Source:Diio Mi data,Credit Suisse research Figure 6:Amadeus consistently losing European share global growth driven by LCCs,meaning low travel agent growth likely Figure 7:R&D ramping for both offensive and defensive reasons weight on FCF likely to remain Source:Company data,IATA data,Credit Suisse research Source:Company data,Credit Suisse estimates-8%-6%-4%-2%0%2%4%2014A2015A2016A2017A2018A1H19ALHA EuropeAF-KL EuropeIAG Europe-2%0%2%4%6%8%10%12%14%Europe SHTransatlanticEurope-APAC6%5%5%8%7%1%1%3%4%-3%20142015201620172018IATA Euro RPK growthTotal Europe GDS booking growth10%11%12%13%14%15%16%17%18%19%-200 400 600 800 1,000 1,2002010A2011A2012A2013A2014A2015A2016A2017A2018A2019ER&D(m)(LHS)R&D as%of revenue(RHS)22 October 2019 AirLinks Value Chain Insights 3 Table of Contents Executive summary 4 Key stock calls 5 The opportunity for the global airline industry to improve revenue quality 9 Airline distribution strategies Europe 12 Airline distribution strategies North America 24 Airline distribution strategies APAC 28 Airline revenue self-help strategies 31 Global co-ordination may be the key to maximum success 43 GDS threats but also opportunities 46 Tech giants yet to disrupt the ecosystem 71 Appendix I-AirLinks:Co-ordinated approach to Global Aviation Value Chain coverage 73 Appendix II Travel distribution ecosystem 76 Appendix III Global Distribution Systems(GDSs)77 Appendix IV IATAs New Distribution Capability(NDC)78 Appendix V Aggregators and resellers 81 Appendix VI-Amadeus in HOLT 84 Appendix VII Credit Suisse PEERs 86 22 October 2019 AirLinks Value Chain Insights 4 Executive summary Airlines pursuing structural revenue quality gains to boost margins:Nearing the end of the cycle(or past the peak,at any rate),with global industry returns(ROIC)likely to regress towards cost of capital(WACC)in 2019(according to IATA),we are at an important juncture for global airline strategies.We consider revenue self-help stories through this lens.Western markets have become increasingly consolidated through this cycle,and despite plenty of cash distributions to shareholders in the US and(to a lesser extent)Europe,the balance sheets of the industry leaders seem to be in good health.While market demand concerns run high,we think consolidation de-risks the downside for earnings in the lower echelons of the cycle and ample resources position the industry leaders to invest strategically in achieving the next layer of margin gains,not only in terms of fleet modernisation to improve fuel efficiency and reduce carbon footprints(see AirLinks-Summer is coming:Assessing CO2 emission risks in aviation),but also to improve yield management and retailing to improve revenue quality structurally.We recognise that long-dated investments at this point of the cycle may seem incongruent with average CEO/CFO tenures.Yet,failure to act strategically at this point runs the risk of eventually requiring a catch-up strategy to compete with the most proactive companies in the sector(in terms of both carbon footprint and digitisation/retailing)and we think it incumbent on airline boards to ensure appropriate investments are made.It is early in the global adoption of the IATAs New Distribution Capability(NDC),and the roll-out of new distribution and revenue generation strategies.Yet,thus far,we observe patchy evidence that US major revenue self-help strategies have driven attractive margins gains,albeit in a concentrated market.In the case of Lufthansa,pricing has underperformed peers consistently in 2019 despite launching its New Distribution X in 2015.The prize for successful execution is compelling,with each 1%movement in global industry revenues worth c.20-30%to global industry operating profit/net income on our estimates.In our view,the industry would benefit from closer co-operation on commercial and IT strategies between global partners(e.g.Delta-Virgin Atlantic-Air France-KLM-Aeromexico-LATAM-Korean-China Eastern with common equity interests led by Delta,Lufthansa-United-Air Canada-Air China-Singapore Airlines-ANA).Our top global airline picks include IAG and United,both rated Outperform.In a gold rush,invest in the shovel seller?The airline sectors ambition of structurally higher revenue quality presents both risks and opportunities to the GDS,and we focus on Amadeus in particular under our coverage.Amadeus opportunities include facilitating better retailing by airlines via tools and initiatives such as ancillary revenues and fare family.Amadeuss new business unit(NBU)strategy continues to build out organically and inorganically.We await more clarity on progress,albeit we acknowledge progress on the hospitality side,with IHG migrated already and Premier Inns 22 October 2019 AirLinks Value Chain Insights 5 migration to start at some point,while synergy potential from the recent acquisition of TravelClick should be capitalised in over time.Yet with Amadeus trading on a PEG ratio of 5x in 2019E and 2020E versus a historical average of 1.5x,standing out as expensive versus European tech peers at 2-3x,we think it could be more difficult for Amadeus to compete for growth-focused equity investment than historically.We continue to focus on cash flow generation,and we do not consider a FCF yield of only 3-4%in 2019E-2020E attractive,as reflected in our DCF-based TP of 56.89.Furthermore,HOLTs warranted price is 57.20,indicating 14%potential downside to the current share price(66.18 on 21 October 2019).Key stock calls Amadeus risks 1.Slowdown in traffic growth means short-term earnings risk supplements continuing slow-burning disintermediation risk theme:Global airline traffic growth is slowing markedly this should affect the entire value chain,and presents clear risk to the highest-valued stocks such as Amadeus,presenting short-term earnings risk to supplement the disintermediation risk that persists.Beyond short-term capacity decisions by the airlines,an increasing focus on carbon footprints across the sector also poses a big long-term question over whether historical growth rates will be slower in the future.2.Likely continued share loss for GDS:There is a widening of the gap between LCC growth and FSC growth,given LCC share pursuits as well as FSC capacity shifts to in-house LCCs,to limit travel agent booking growth over the medium term.This should drive continued share loss for GDS and reduce their bargaining power gradually,suggesting growing questions over the role and relevance of GDS to the evolving market over time.3.Proliferation of competing tech players in a concentrating global airline industry may reduce market power:We think this should:(a)provide more alternatives to the traditional industry leaders,(b)drive investment in greater functionality to retain industry-leading positioning,and(c)bring down market pricing over time.We note the European Commission investigation into Amadeus and Sabres agreements with airlines and travel agencies,on the basis that their deals may restrict airlines and agents from utilising alternative ticketing services and prevent new entrants to the market,which may drive higher costs to airlines and ultimately for consumers.The US DoJ is also seeking to block Sabres planned acquisition of Farelogix on anticompetitive grounds,with the US DoJ announcing strong concerns on GDS market power.Amadeus opportunities 1.Upsell momentum looks set to continue:Airlines continue to upgrade their offerings,driving revenue opportunities for Amadeus as well as its competitors.Momentum in selling ancillary revenue functionality to airlines is strong and is likely to remain so,in our view.22 October 2019 AirLinks Value Chain Insights 6 2.Higher value global bookings outperforming the industry:Higher-value global booking growth should continue to outpace local booking growth,particularly as LCC growth outstrips full-service carrier growth.This should ensure revenue per booking firmness unless global airline JVs ultimately prompt a structural change to the pricing of global bookings.3.Medium-term revenue opportunities beyond the airline sector:The companys NBU strategy has little disclosure to-date on actual results.But a slowly building hotels pipeline and attractive M&A could present good opportunities;Amadeus has continued to add attractive acquisitions,with TravelClick and ICM Airport Technics being the most recent additions on the hospitality and airport sides,respectively.Figure 8:2019E-2020E consensus expectations for Amadeus vs CS forecasts(m)we are 6%below consensus at EBIT in 2020E with revenue growth slowing to 7%Source:Credit Suisse estimates,I/B/E/S Figure 9:PEG ratios:Amadeus vs top 10 Euro tech names by mkt cap high PEG ratio makes it more difficult for Amadeus to compete with peers for investment Source:Company data,Credit Suisse estimates(2019 multiples for ASML,Nokia,Infineon not meaningful)12002200320042005200620072002019E2020E2021ECS RevenueConsensus RevenueCS EBITDAConsensus EBITDACS EBITConsensus EBITCS PBTConsensus PBT012223345800232253Y 2018-2020E PEG ratio2019 PEG ratio22 October 2019 AirLinks Value Chain Insights 7 Airline opportunities Structurally better pricing control:Improved visibility and more sophisticated usage of data could improve seat pricing structurally.Each 1%improvement in passenger unit revenue(RASK)would increase 2020E EBIT by 10-20%for Air France-KLM,IAG and Lufthansa,on our estimates.Ancillary revenue opportunities can improve margins structurally:Selling a wider range of products(i.e.ancillary products)should raise the share of passenger wallets,with incremental revenues falling largely to the bottom line.Partnership opportunities:We see the opportunity for global airlines to integrate partnerships to a considerably greater degree,to improve commercial performance.Further,it is not clear any carrier has maximised loyalty plan value(albeit Qantas stands out as an industry leader in this regard).This seems to be a future opportunity as retailing strategies evolve.Figure 10:2020E operating margins for IATA NDC Leaderboard airlines Figure 11:High sensitivity to a 1%change in revenues Source:Credit Suisse estimates Source:Credit Suisse estimates Airline risks Focus on the core required:Focus on adding new revenue streams distracts from managing the core in a consolidated market,which should allow structural pricing improvements.Investments not producing returns top-of-the-cycle behaviour?Acceptance of higher costs(IT/distribution)as management teams are sold on future opportunities is a risk,particularly at a time when capex intensity is high(and difficult to reduce in an increasingly carbon-conscious market).Downturn could test managements resolve:A tough 2020/2021 could prompt budget pressures and cuts to non-essential projects(pressure increased by environmental concerns).13%11%10%8%8%8%7%5%4%4%8%9%10%13%13%13%15%19%23%26%22 October 2019 AirLinks Value Chain Insights 8 Figure 12:2019E-21E EBITDA consensus expectations for our European airline coverage vs CS forecasts(m)Source:Credit Suisse estimates,I/B/E/S Figure 13:Credit Suisse HOLT 2018 CFROI vs t+5 market-implied CFROI Note:A t+10 forecast is used for Amadeus owing to its eCAP status in HOLT.Source:Credit Suisse HOLT 01000200030004000500060007000201920202021AF-KLM CSAF-KLM ConsensusLufthansa CSLufthansa Consesn