Airlines Sector Ari Jerrick Laura Michael Sungil HistoryBackground
Airlines Sector Ari, Jerrick, Laura, Michael, Sungil
History/Background • Industry is comprised of 15 global corporations • Boom in industry after WWII • Growth lasted until 9/11/01 • Airline industry in 2000’s • Leading to bankruptcy of all but 1 of major airlines • Historically, industry as a whole has made a cumulative loss during its 100 year history
Economics Major Revenue: Ticket Sales -Airlines often merge and form alliances and act as price discriminating cartels High level of fixed and operating costs: -Labor, fuel, airplanes, maintenance, insurance, etc. Partnerships increase volume and available destinations and reduce fixed costs
Industry Trends Pattern of ownership has been privatized in recent years after being highly regulated 1950 -1970: 15%+ annual growth rates 1980 -2000: 5% annual growth rates 2000 -2010: bankruptcy Consolidation is a trend, business is hard In the U. S. alone over 200 airlines have merged, been taken over, or gone out of business since 1978
Southwest Airlines Management • Gary C. Kelly Chairman of the Board, President, Chief Executive Officer • Laura H. Wright Chief Financial Officer, Senior Vice President – Finance • Michael G. Van de Ven Chief Operating Officer, Executive Vice President
Southwest Airline 1971, Air Southwest Co had their first revenue flight and changed their name to Southwest Airline Co. March 15, 1967 Air Southwest Co. Started 2006, with the Wright Amendment removed March 16, 1995, Southwest became one of the first airlines to have a website.
Airline Product • Boeing 737 • Airfare Price • Rewards
Strengths • Largest airline in the US • Low-cost carrier • Short Haul Airlines • Bags fly free at Southwest
Weaknesses Employees Seating class Ticket Sales
Opportunities Expansion Meals Technology Private flights
Threats Terrorists Oil prices Weather Rivals
Horizontal/Vertical Analysis Assets Liabilities Equity 2008 -14. 8% (14. 308 B) -4. 8% (9. 355 B) -28. 6% (4. 953) 2009 -0. 27% (14. 269 B) -5. 7% (8. 815 B) 10. 1% (5. 454 B) 2010 8. 37% (15. 463 B) 4. 66% (9. 226 B) 14. 3% (6. 237 B)
Technical and Quantitative Analysis Southwest Airline Market Capital: 9. 24 Billion P/E: 20. 28 EPS: 0. 61 Beta: 1. 09 Regional Airlines Average Market Capital: 2. 47 Billion Average P/E: 23. 8 Average EPS: 0. 78
United Continental Holdings (UAL) • Operates two major airlines; United and Continental • Hubs in Los Angeles, San Francisco, Denver, Chicago, Washington, D. C. and Tokyo • Has global air rights in the Asia-Pacific region, Europe and Latin America • United is a founding member of the Star Alliance, and offers connections to over 1, 000 destinations in over 170 countries worldwide
UAL Management Jeffery A. Smisek: President, CEO, Director Zane C. Rowe: CFO, Executive Vice President Peter D. Mc. Donald: COO, Executive Vice President
United Airlines History Founded in Boise, ID as local carrier Purchase of Pan Am opens up overseas travel 9/11/01 WWII 1926 Expanded to national carrier 1997 1985 Co-founded Star Alliance Exit bankruptcy 2002 2010 2008 Filed for ch. 11 bankruptcy Merger between Continental and United
Strengths Controls many key air rights Largest U. S. Carrier to the People’s Republic of China Second largest airline in terms of fleet number Will be the only airline to operate all 3 -ER models
Weaknesses Controversy about branding and advertising Vs. Has significantly higher fees than competitors Has to compete in the airline industry
Opportunities Opportunity to end branding controversy and unite brand by dissolving Continental name in 2012 Merger dramatically increases passenger volume and destinations available Continued growth of Asian operations
Threats Rising costs of jet fuel Terrorism via airplanes Global warming increasing the volatility of weather and changing patterns Economic downturn, meaning less leisure expenditures
Quantitative Analysis Market Cap: $7. 66 bil Current Price: $23. 31 Trailing P/E: 21. 6 (25. 42) PEG: 1. 58 (2. 16) EPS: 1. 08 (4. 75) Operating Margin: 7. 22% (11. 49%) Profit Margin: 1% Quarterly Rev. Growth: 101. 1% (1 out of 14)
Horizontal Analysis Year Total Return Percentage 2007 $20. 143 bil 2008 $20. 194 bil +0. 25% 2009 $16. 33 bil -19. 23%
Vertical Analysis Total Assets 2009: $18. 65 bil Long Term Debt 2009: $7. 57 bil Thus, LT debt is 40. 68% of Total Assets
Technical Analysis
Qualitative Analysis UAL’s poor financials are a result of the industry they are in. Merger of United and Continental in 2010 Key air rights in Asia Plus potential to be exclusive supplier to China Plus large fleet
Singapore Airlines Limited The airline is a subsidiary of Singapore government investment and holding company Temasek Holdings Strong presence in Asia markets Subsidiaries include Silk. Air, SIA Engineering Company, SIA Cargo, Tradewinds Tour and Travel Strong brand name and trendsetter in terms of innovations, safety, and services One of seven airlines ranked a 5 -star airline by independent research consultancy firm Skytrax
Singapore Airlines Management Stephen Lee Ching Yen (63) – Non-Independent Non Executive Chairman of the Board Goh Choon Phong (47)– Chief Executive Officer, Executive Director Chin Hwee Ng (49) – Executive Vice President for Human Resources and Planning
History 1990 s Revolutionized inflight 1968 French designer Pierre communications and entertainment Kris. Fone Balmain designs the serong kabaya uniform (first global sky telephone service) and Kris. World and “Singapore Girl” debuts May 1, 1947 Malayan Airways Limited 1972 Malaysia-Singapore Airlines split to two entities October 25, 2007 A 380, world’s largest commercial plane entered service with SIA 1998 International Culinary Panel – world-renowned chefs to develop inflight meals
Airline Product/Services 108 fleets in service -Airbus A 380 (largest passenger airliner) -Boeing 777, B 747, A 330, A 340, A 380 Suites, First, Business, Economy Classes Silver Kris Lounges (open to Suites, First, Business) In-flight entertainment and communication system Frequent Flyer Program (Kris. Flyer, PPS Club)
Singapore Airlines flies to 65 destinations in 35 countries on five continents
Singapore Airlines Market Cap: $16. 1 bil Current price: $13. 50 P/E Ratio: 11. 67 (sector at 13. 76) EPS: 1. 96 Beta: 0. 78 (sector at 1. 15) No dividend declared as of Dec 2010 Q 3 Revenue: $3. 1 bil (12. 4% up from 2009 Q 3) Profit: $377 mil (63. 5% up from 2009 Q 3)
Technical Analysis
Strengths Diversified geographical spread Leading Airline in Asia Offers world gourmet cuisine to all classes Successful branding of “Singapore Girls” Youngest fleet of aircrafts Second Largest Airline
Weaknesses High risk industry Targets high-class customers Weak relationship between labor unions and management
Opportunities Growing Asia Pacific market Growing market in all Americas Increase in trans-pacific cargo Potential global expansion
Threats Rising Aviation fuel prices Increasing competition from low cost airlines Instability in the Middle East Crippling government regulations Fluctuations in world economy Terrorism Weather
Horizontal/Vertical Analysis Assets Liabilities Equities 2008 2. 03% ($26. 52 bil) 4. 59% ($11. 39 bil) 1. 98% ($15. 13 bil) 2009 -6. 41% ($24. 82 bil) -4. 39% ($10. 89 bil) -7. 93% ($13. 93 bil) 2010 -9. 42% ($22. 48 bil) -17. 17% ($9. 02 bil) -3. 37% ($13. 46 bil)
Comparison Airline Market Cap EPS P/E Ratio Revenue Beta Southwest $9. 24 bil 0. 61 20. 28 $12. 1 bil 1. 09 $8. 5 bil 1. 08 24. 26 $23. 2 bil 0. 99 Singapore $16. 1 bil 1. 96 11. 67 $12. 7 bil 0. 78 United
Future of Airline Industry People will travel more as economy picks up Fuel prices could continue to hike up due to conflicts in the Middle East Rising fuel prices means ticket prices go up due to fuel surcharges to customers Air travel facilitates economic growth, world trade, international investments and tourism There is potential for airlines to expand globally and enter new markets
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