10-04-2013, 03:06 PM
Valuation Ratios in the Airline Industry
1Valuation Ratios.ppt (Size: 304.5 KB / Downloads: 25)
Objectives
We want to determine the following:
Valuation ratios to use for the airline industry
Key factors which influence these ratios
How to intuitively match a given airline with a set of valuation ratios based on its strategy
American Airlines
Background
Long haul carrier
Established in the 1920s, American was one of the first U.S. giants in the industry due to >80 acquisitions, and the largest U.S. airline based on revenues in 2000
Owns two regional airlines and also one of the largest airfreight carriers in the world
Very competitive domestic market with up to nine airlines providing service on competitive routes.
Strategy
Pricing decisions largely affected by competition – some with lower cost structure
Efficient and quiet aircraft
In 2000, American Eagle regional jet fleet was increasingly aggressive
Continued expansion into domestic and international route networks anchored by efficient hubs, enabled American to capitalize on any passenger traffic growth
Summary
We have seen that by a) reviewing the
strategies and b) estimating the direction and
magnitude of earnings and asset base growth,
we can intuitively rank airline companies
using our PE and PB valuation multiples.