RBC Australian domestic airfare tracker – May-26 update

Research evidence excerpt

RBC Australian domestic airfare tracker – May-26 update

peer-average multiples to our 2yr EBIT forecasts by business. Our fwd-NPV of A$9.82/share discounts the future cash flows using

a long-term WACC of 10.8% (terminal growth rate 2.5%). Our price target supports a Outperform rating.

Risks to rating and price target

Underlying demand - Stronger/(weaker) demand for air travel across both business and leisure markets is broadly underpinned

by improved/(deteriorating) general economic conditions.

Travel restrictions - The risk of imposition of travel restrictions both national/regional on security grounds (i.e. pandemics,

terrorism, war) is largely unpredictable.

Competition risk - Expansion/(consolidation) of carriers on individual routes is generally related to increased/ (decreased) capacity

and discounted/(improved) ticket pricing, and therefore diluted/(improved) profitability.

Oil prices - At 25-30% of operating costs, higher/(lower) oil and jet fuel prices can place downward/(upward) pressure on

profitability.

Cost inflation - With high operating leverage, any escalation/(stabilisation) of operating cost inflation would have a negative/

(positive) impact on profitability.

Operational risk - Consumers place very high demands on airlines, ranging from punctuality, service quality and safety. Operational

failures can result in significant reputational and brand damage.

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