US Airlines: Feedback to our 2Q preview + Thoughts after Last Week‘s Rally

Research evidence excerpt

US Airlines: Feedback to our 2Q preview + Thoughts after Last Week‘s Rally

Valuation Method and Risk Statement

Risk Statement: Airlines are highly dependent on consumer leisure and business travel

spending both of which provide minimum visibility. Exogenous events can have a significant

impact on airlines and their operating viability. Taken with fuel price volatility, high labor costs

and large capital expenditures, the company's earnings and cash flow can swing wildly.

Additionally, competitive dynamics can also weigh on profitability as airlines looks to fend off

existing competitors as well as newcomers which often bring some form of new competitive

operating model (LCCs initially and now ULCCs).

Delta Air Lines Inc:

Valuation: We use a P/E multiple to determine our price target for DAL. Our price target is

based on multiples analysis. We take into account where the stock is currently trading at vs. its

historical average as well as relative to peers.

Risks specific to DAL broadly relate to a potential macro slowdown and also from a slowdown

in consumer propensity to trade up to its premium offering.

United Airlines Holdings Inc:

Valuation: We use an P/E multiple to determine our price target for UAL. Our price target is

Risks specific to UAL broadly relate to a potential macro slowdown and also form a slowdown

Alaska Air Group Inc:

Valuation: We use a P/E multiple to determine our price target for ALK. Our price target is

Risks specific to ALK broadly relate to a potential macro slowdown, especially in the West

Coast and Hawaii (where it has disproportionate exposure to) and also from a slowdown in

consumer propensity to trade up to its premium offering. In addition, ALK also has integration

related risks due to its recent acquisition of Hawaiian Airlines.