Here come the downgrades...Event Pertinent Revisions New Old Rating: SP SO Target: 1-Yr $14.00 $17.50 EBITDAR15E $2,499 $2,394 EBITDAR16E $2,123 $2,233 New Valuation: 4.5x EV/NTM EBITDAR (one-year fwd.) Old Valuation: 4.75x EV/NTM EBITDAR (one-year fwd.) We are downgrading AC shares to SP. Implications The quarter was pretty much in line with expectations but this was mainly due to fuel as both RASM & adjusted CASM was below forecast. We reduced our RASM forecast for the balance of 2015 by ~80 bps mainly due to weaker than expected trends and continued macro worries although AC management reiterated that demand still remains strong. The rise in 2015 EBTIDAR was mainly due to fuel. AC's long-term strategy still seems achievable to us. However, we believe that this is generally discounted in consensus estimates especially as AC provided detailed LT guidance at its investor day. Our estimates are already baking in these improvements and the only reason we are not at the high-end of AC's guidance is that we are more conservative on fuel. In the context of a tougher macro scenario, we think that the likelihood of significant beats are low from here on out. Recommendation AC shares have outperformed WJA by a significant margin on a YTD basis mainly as its cost reduction story has been playing out and there have been catalysts such as buyback and investor day. In our view, risks are now biased on the downside for AC and there are few major positive catalysts on the horizon. We are reducing our TP to $14 (from 17.50) and taking our rating to SP (sector perform).