US Equity Research J.P. Morgan Securities Inc. US Airways Group, Inc. - Overweight
Fewer Seats, More RASM, LCC Now Rated Overweight
Fewer seats – Mainline carriers expected to remove more domestic capacity in 2006 than JetBlue will operate. With jet kerosene surging to new highs, the capacity outlook is rapidly improving. Further reductions believed imminent. Thus far, particularly an East Coast phenomenon.
More RASM – Domestic capacity est. -2% in 2006, driven by a 6.6% redux by ATA-reporting carriers. We believe domestic RASM can exceed 2005’s estimated +6.5%, possibly topping 10%. Good news for many, though retreating East Coast carriers (notably DAL, LCC) should benefit more than those with throttles to the firewall (JBLU).
US Airways rated Overweight – US Airways RASM expected to handily exceed that of the industry, allowing for profits provided jet kero retreats below $1.85, assuming only modest ex-fuel cost progress.
Thank you Delta – Pro-forma US Airways overlaps with Delta as much as AirTran, about 15¢ on every forfeited Delta dollar. Additionally, US Airways last week increased its exposure to Delta, filing fares on 4,500+ new DAL-dominated routes. A rapidly retreating competitive backdrop was not part of our initial thesis on US Airways.
It is now…Cash + RASM + Valuation = Overweight – The combination of adequate liquidity (YE05 unrestricted $1.5b) and healthy RASM should allow for occasional integration hic-cups. At an approximate 30% EV/Revenue and 15% EV/EBITDAR discount to the sector, LCC shares are more than adequately discounting merger uncertainty, in our view, and join our short-list of OW-rated names, AAI, ALK, GOL & LUV.
See report
Regards,
USA320Pilot
Fewer Seats, More RASM, LCC Now Rated Overweight
Fewer seats – Mainline carriers expected to remove more domestic capacity in 2006 than JetBlue will operate. With jet kerosene surging to new highs, the capacity outlook is rapidly improving. Further reductions believed imminent. Thus far, particularly an East Coast phenomenon.
More RASM – Domestic capacity est. -2% in 2006, driven by a 6.6% redux by ATA-reporting carriers. We believe domestic RASM can exceed 2005’s estimated +6.5%, possibly topping 10%. Good news for many, though retreating East Coast carriers (notably DAL, LCC) should benefit more than those with throttles to the firewall (JBLU).
US Airways rated Overweight – US Airways RASM expected to handily exceed that of the industry, allowing for profits provided jet kero retreats below $1.85, assuming only modest ex-fuel cost progress.
Thank you Delta – Pro-forma US Airways overlaps with Delta as much as AirTran, about 15¢ on every forfeited Delta dollar. Additionally, US Airways last week increased its exposure to Delta, filing fares on 4,500+ new DAL-dominated routes. A rapidly retreating competitive backdrop was not part of our initial thesis on US Airways.
It is now…Cash + RASM + Valuation = Overweight – The combination of adequate liquidity (YE05 unrestricted $1.5b) and healthy RASM should allow for occasional integration hic-cups. At an approximate 30% EV/Revenue and 15% EV/EBITDAR discount to the sector, LCC shares are more than adequately discounting merger uncertainty, in our view, and join our short-list of OW-rated names, AAI, ALK, GOL & LUV.
See report
Regards,
USA320Pilot
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