Founder & Managing Director, AIR Control Tower, AIR Control Tower

Neil Glynn

Founder & Managing Director, AIR Control Tower

AIR Control Tower

AIR Control Tower is an independent research and analysis platform. Its mission is to provide impactful insight and analysis across the global airline industry at a company and market level via detailed financial models to aid decision making for key stake holders at a time when risks have seldom, if ever, been higher and the global sector grapples with the imperative of funding de-carbonisation. Unique analysis forecasting global carrier-level earnings/cash flows, and restructuring/de-leveraging prospects, is designed to dynamically assess the health of the industry, predict surprises and identify potential requirements for third party support.

Insights on the global airline industry

Equity Bottom-Up

<ul>
<li>Given events in the Middle East and associated risks for oil prices, we publish a quick guide to the 2024 earnings sensitivity to fuel price increases for the European airlines.</li>
<li>Rising fuel prices pose starkest risk to Lufthansa earnings, and it has just profit warned due to strike costs, which leave it needing a record 2H to meet guidance.</li>
<li>Ryanair is comfortably most insulated given margin and balance sheet strength.</li>
</ul>


Given events in the Middle East and associated risks for oil prices, we publish a quick guide to the 2024 earnings sensitivity to fuel price increases for the European airlines.
Rising fuel prices pose starkest risk to Lufthansa earnings, and it has just profit warned due to strike costs, which leave it needing a record 2H to meet guidance.
Ryanair is comfortably most insulated given margin and balance sheet strength.


European Airlines - Assessing Fuel Price Risk to Earnings

International Airlines Group / Equity Bottom-Up

<ul>
<li>We publish quarterly earnings bridges through 1Q-4Q24 for Air France-KLM, IAG and Lufthansa, which illustrate 1Q will be difficult yoy.</li>
<li>This renders forward commentary extremely important and summer pricing prospects are encouraging. Delta kicks off airline reporting season globally on 10 April and is likely to set a bullish tone</li>
<li>However the European low cost carriers easyJet, Ryanair and Wizz Air are seeing greater earnings momentum than the flag carriers given short haul fare strength.</li>
</ul>


We publish quarterly earnings bridges through 1Q-4Q24 for Air France-KLM, IAG and Lufthansa, which illustrate 1Q will be difficult yoy.
This renders forward commentary extremely important and summer pricing prospects are encouraging. Delta kicks off airline reporting season globally on 10 April and is likely to set a bullish tone
However the European low cost carriers easyJet, Ryanair and Wizz Air are seeing greater earnings momentum than the flag carriers given short haul fare strength.


European Airlines – Bridging Flag Carrier 1Q24 and 2024 Prospects

<ul>
<li>We forecast €2.6bn Adjusted EBIT in 2024, below management guidance of €2.7bn, given concerns about margin management as capacity increases 12% yoy.</li>
<li>Detailed analysis of the margin gaps and key drivers of gaps at each of Lufthansa's airlines illustrates remedial work required with new perspective.</li>
<li>Bringing each portfolio company towards the Group Adjusted EBIT margin target of &gt;8% would represent the CEO's finest achievement (apart from helping save the company through COVID).</li>
</ul>


We forecast €2.6bn Adjusted EBIT in 2024, below management guidance of €2.7bn, given concerns about margin management as capacity increases 12% yoy.
Detailed analysis of the margin gaps and key drivers of gaps at each of Lufthansa's airlines illustrates remedial work required with new perspective.
Bringing each portfolio company towards the Group Adjusted EBIT margin target of &gt;8% would represent the CEO's finest achievement (apart from helping save the company through COVID).


Lufthansa – Portfolio Carrier Catch up Requirements Analysed

<ul>
<li>Following AF-KLM and IAG results we refresh our forecasts, and our detailed quarterly bridge analysis in 2024 suggests each can grow earnings this year.</li>
<li>IAG clearly differentiates itself from AF-KLM with strong FCF generation while AF-KLM is unlikely to generate positive FCF before 2025 as it pays obligations deferred through COVID.</li>
<li>​Lufthansa continues to appear highest risk in 2024 given as capacity restoration catches up with peers.</li>
</ul>


Following AF-KLM and IAG results we refresh our forecasts, and our detailed quarterly bridge analysis in 2024 suggests each can grow earnings this year.
IAG clearly differentiates itself from AF-KLM with strong FCF generation while AF-KLM is unlikely to generate positive FCF before 2025 as it pays obligations deferred through COVID.
​Lufthansa continues to appear highest risk in 2024 given as capacity restoration catches up with peers.


European Airlines – FCF the Key Differentiator Between AF-KLM and IAG

Index Rebal/Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Index Rebal/Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Index Rebalance

Vitesco Technologies Group / Index Rebalance

<ul>
<li>In this insight, we take a look at the potential ADDs/DELs for the DAX index and the MDAX index in the run up to the March 2024 index rebal event.</li>
<li>The official index changes for the March 2024 review could be announced after the close of 5th March 2024.</li>
<li>I currently do not see any changes for the DAX index but there could be one change for the MDAX index.</li>
</ul>


In this insight, we take a look at the potential ADDs/DELs for the DAX index and the MDAX index in the run up to the March 2024 index rebal event.
The official index changes for the March 2024 review could be announced after the close of 5th March 2024.
I currently do not see any changes for the DAX index but there could be one change for the MDAX index.


Quiddity Leaderboard DAX/MDAX Mar 24: M&A Candidates Morphosys and Vitesco Could Face Index Flows

Germany

Deutsche Lufthansa Aktiengesellschaft provides passenger and cargo air transportation services worldwide. The Company offers flight and connection programs in North America, Scandinavia, and Asia. Deutsche Lufthansa also provides travel agency, catering, and aircraft maintenance services.

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Deutsche Lufthansa (LHA GR)

European Airlines - Assessing Fuel Price Risk to Earnings

Detailed historical and forward looking analysis on the European airline sector's ability to manage fuel price headwinds/volatility.

Neil Glynn

European Airlines – Bridging Flag Carrier 1Q24 and 2024 Prospects

Deep dive on quarterly earnings prospects for the European flag carriers through 2024 illustrates 1Q difficult and forward commentary crucial to...

Neil Glynn

Lufthansa – Portfolio Carrier Catch up Requirements Analysed

Deep dive into the margin gaps at each portfolio company versus the Group target of Adjusted EBIT margin of >8%, to illustrate the remedial work...

Neil Glynn

European Airlines – FCF the Key Differentiator Between AF-KLM and IAG

Deep dive on the quarterly earnings outlook for AF-KLM and IAG which illustrates the scope for each to grow EBITDAR in 2024 despite persistent...

Neil Glynn

Quiddity Leaderboard DAX/MDAX Mar 24: M&A Candidates Morphosys and Vitesco Could Face Index Flows

I expect Vitesco Technologies Group (VTSC GR) to trigger the fast exit rule and get deleted from the MDAX index and MorphoSys AG (MOR GR) could get...

Janaghan Jeyakumar, CFA

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