Post by
Tempo1 on Jun 12, 2024 11:08am
Is the market irrational with AC ?
Just a few toughs; Results are about facts and markets are about facts and sentiment. I disagree with the market and I hope to make gains with a position on AC in the next few months. But is the market irrational ? I don't think so. There is few headwinds for AC:
- The pent-up demand belongs to the past; we are in 2024, one year after the airlines recovery. Is the business class still in recovery ? I don't think so; there no reason behind a slower recovery for the business class than other passengers. The person to person meetings is simply less a need than before in this past Covid world, exactly as the work at home new phenomena. They can improve the occupancy rate of ths class but with incentives, new clients etc but that is not a recovery phenomena; there is a new normal for business travel.
- The Altantic market is weaker than last year. Yep, AC can alow ressouces on other markets but at the end of the day, one leg is weaker than last year.
- The pilots negociation is longer than hoped. The positive is that union doesn't want to perturb the operations; they are rough for their demands but soft in actions; no disruptions. But we all know that the final agreement could not be the management proposition, it will be somewhere in between the management and the union position. The AC's forecasts includes the new salaries but only at the level hoped by the management. The economics of that future agreement will be higher, at a level not included in forecasts. So, it is not garanteed that the AC forecasts doesn't have to be revised lower.
- India market is strong, as some other in the asia but the 32 flights a week to China less than 2019 (caused by the no-fly zone over Russia for occidental airlines) weakened another leg for AC.
That being said, there is a lot of reasons for the market to stay on the side, it is not irrational; we are not in the full lights at green situation we had in the past . But is that enough to stall the SP at these levels forever; ? NO.
I think that let's move forward towards the results of the 2nd and the 3nd quarter, and towards a possible resumption of the pilots negociation and we will have a substantial return. Let's do a simple calculation: The actual enterprse value is 10,1 B$ (market value + net debt) is 2,5 times the forecasted EBITDA of 4 B$. Even with a worst case scenario at a 3,5 B$ EBITDA for next years (as RBC forecasts, one of the bears in the AC case) , we would be at 2,8 X EV. A lot less than peers.