RBC: Target +2$Mgmt increases guidance as AC capitalizes on positive trends
Our view: AC raised its 2023 guidance on the back of stronger traffic, higher fares and lower fuel costs. In other words, AC is capitalizing on very solid near team demand trends that is allowing the company to raise prices in excess of rising costs, while benefiting from the drop in fuel prices. While we remain concerned regarding the post summer demand and pricing, we believe management efforts to regain its footing postCOVID are commendable.
Key points:
2023 guidance raised; 2024 maintained. AC raised its 2023 guidance from a stronger-than-anticipated demand environment and lower-than expected fuel price, while keeping its prior 2024 guidance unchanged. EBITDA guidance in 2023 was raised to $3.5B to $4B (from $2.5B to $3B) well above consensus at $2.8B. Guidance for 2024 was kept at $3.5B to $4B, and now aligns with 2023.
CASM up, fuel down, capacity flat. AC re-based CASM guidance off 2022 vs its prior convention off 2019, noting that comparisons to 2019 are not as meaningful, given the new (higher) cost environment. That said, the change translates into a 4% increase in costs at the midpoint and likely means higher costs are here to stay, in our view. Aside from demand, fuel aided in the raise as prior assumptions moved down 16% from $1.30/Ltr to $1.09/ Ltr, since the guidance was released last quarter. Finally, capacity guidance was essentially unchanged at -10% vs 2019.
Estimates move higher in 2023; 2024 largely unchanged. While the new EBITDA guidance is well above consensus estimates, we have a somewhat more cautious view on the demand environment post summer, the sustainability of pricing, new competition and the rebound in business travel. Accordingly, we are moving our estimates up to the low end of the new 2023 guidance and remain below guidance and consensus for 2024. Our 2023E EBITDA goes to $3.56B (from $2.4B) vs. guide of $3.5B to $4B and our 2024E EBITDA moves slightly higher to $3.2B (from $3.1B), compared to guide of $3.5B to $4B. Target multiple remains unchanged at 5x and our price target moves to $22 (from $20). Reiterate Sector Perform.