Transcript International Airlines Presented By: Zaki Kasmani David Tran

International Airlines
Presented By:
Zaki Kasmani
David Tran
Laurence Wong
Cecilia Fan
Business 417
Spring 2006
Industry Outlook
JustOR??
Kidding!
Basic Definitions

ATK (Available Tonne Kilometres) :


ASK (Available Seat Kilometers):






The average amount of revenue received per RPK, net of taxes
Revenue divided by RPK
Represents an aggregate of all the airfare and airline charges and measured on a per kilometer
basis
LOAD FACTOR:



The average operating cost incurred per ATK
YIELD:


Used to measure actual freight traffic
UNIT COST:


% of ASK used
FTK (Freight Tonne Kilometers):


The number of passengers multiplied by the number of kilometers they are flown
Used to measure actual passenger traffic
PLF (Passenger Load Factor):


The number of seats an airline has available multiplied by the number of kilometers they are flown
Used to measure airline capacity
RPK (Revenue Passenger Kilometers):


Used to measure available total capacity (combined passenger and cargo)
RPK divided by ASK
The percentage of seating or freight capacity that is utilized. Computed as the ratio of RPK to ASK
or in the case of cargo services, RTK to ATK
BREAK-EVEN LOAD FACTOR:


The Load Factor when operating revenues is equal to operating costs
Unit Cost divided by Yield
Types of Airlines
•Legacy: International & National
traditional airlines (ie: British Airways,
Delta Airways)
•Discount: Regional (Europe) or National
(US) (ie: Easyjet, Southwest)
•Cargo
Airline Characteristics
Capital intensive industry (highly
leveraged)
 Largest operating costs: Labour & Fuel
 Historically low labour productivity
 Very sensitive to global business cycles
 Very competitive
 Sensitive to geopolitical events ie: 911, SARS, etc

Types of Routes
Point to point (linear): direct flight to
destination (low-cost/discount model)
 Hub and spoke: connection flight
(traditional model)



Hub: airport that is used as a transfer point
Spoke: routes that airplanes take
Past & Present Injuries








Deregulation (October 28, 1978)
Terrorist attacks (Sept 11, 2001)
The collapse of the dotcom bubble (late
1990)
The war in Iraq (2003 - present)
The SARS epidemic in Asia (start November
2002)
Fiercer competition from new low-cost
carriers
High taxation
Rise in oil price
Future Threats









Additional terrorist attacks
Future price of oil
Further competition from regional airlines
Security impact on cost and travel
convenience
Decrease in consumer confidence
World economy
Business cycle
Debt (airline industry’s debt load exceeds
the US industry average)
Aircraft cost & maintenance
Bankruptcy Protection

2002-2005: Majority of US legacy airlines
entered & emerged from Chapter 11; some
still working through restructuring (Delta)

Focus was cost reduction: reduced labour
costs, pension restructuring, capital
restructuring (fleet overhaul to cheaper,
more fuel efficient aircraft – avoid the
Jetsgo predicament)

Airlines include: Delta, American Airlines,
Northwest, United
Growth Projections
Global Traffic Outlook
Historical Data
Total Operating Revenues
160,000,000
140,000,000
120,000,000
100,000,000
80,000,000
60,000,000
40,000,000
20,000,000
0
-20,000,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
SOURCE: Bureau of Transport Statistics
Historical Data
Total Operating Revenues
Operating Profit or Loss
Total Operating Expenses
160,000,000
140,000,000
120,000,000
100,000,000
80,000,000
60,000,000
40,000,000
20,000,000
0
-20,000,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
SOURCE: Bureau of Transport Statistics
Fuel Costs
$ per
gallon
Airline Fuel Cost
Domistic Total Cost ($)
International Total Cost ($)
All Cost ($)
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
1995
1996
1997
1998
SOURCE: Bureau of Transportation Statistics
1999
2000
Year
2001
2002
2003
2004
2005
Fuel Costs
Airline Fuel Consumption
Domistic Total Gallons
International Total Gallons
All Gallons
45000000000
40000000000
35000000000
30000000000
25000000000
20000000000
15000000000
10000000000
5000000000
0
1995
1996
1997
1998
SOURCE: Bureau of Transportation Statistics
1999
2000
Year
2001
2002
2003
2004
2005
Labour Costs
Average Wages and Salary Accruals per Full-Time Equivalent Employee by Transportation Industry (Current $)
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Cumulative
Growth
All industries
27,326
28,672
29,444
30,177
31,034
32,087
33,490
35,201
36,754
38,846
42.16%
Transportation, total
30,018
31,575
31,392
31,946
32,283
33,074
34,407
35,907
37,178
38,484
Air
34,487
36,058
35,852
36,257
36,419
36,989
38,691
40,441
42,523
43,820
Trucking and warehousing
26,921
28,336
28,293
29,112
29,605
30,342
31,754
32,949
34,007
35,024
Local and interurban passenger transit
18,064
18,950
18,955
19,504
19,980
20,648
21,219
22,008
22,792
23,745
Railroad
45,893
50,267
50,440
51,719
50,465
55,299
57,235
60,632
60,623
62,673
Water
34,703
36,311
36,833
37,357
37,769
38,857
40,329
42,317
43,436
44,980
Pipelines, except natural gas
47,000
51,526
50,421
54,647
58,186
54,782
58,881
64,991
65,379
66,540
27,169
28,534
28,792
29,588
30,801
31,511
32,794
34,603
36,204
38,602
24,565
25,646
26,374
26,936
26,998
27,789
28,808
29,744
30,618
31,949
Transportation services
c
Aggregate Economy
27.06%
30.06%
SOURCE : U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Products Accounts, tables
6.6b and 6.6c, Internet site http://www.bea.doc.gov/bea/dn1.htm available as of Feb. 17, 2004
AGGREGATE ECONOMY DATA SOURCE: US Bureau of Labour Statistics
Labour Costs
Career/Industry Group
Minimum Salary
Average Salary
Airport
$25,000.00
$43,722.70
$79,200.00
AP Mechanic
$14,137.20
$44,504.22
$75,000.00
Avionics
$18,000.00
$48,191.44
$150,000.00
Computer
$35,322.00
$52,957.83
$70,543.00
Dispatch
$25,000.00
$32,000.00
$55,000.00
Engineering and Aerospace
$20,000.00
$67,484.60
$115,000.00
Executive
$60,000.00
$72,500.00
$80,000.00
Flight Attendant
$16,800.00
$17,099.00
$24,000.00
Ground-Ramp
$50,000.00
$57,500.00
$65,000.00
Management
$16,476.00
$62,024.21
$120,000.00
Office and Administrative
$14,137.20
$33,479.23
$64,728.00
Other
$20,000.00
$36,950.00
$56,800.00
Pilot
$14,137.10
$52,061.39
$110,000.00
Sales-Marketing
$30,000.00
$52,750.00
$80,000.00
Source: Aviation Career & Salary Ranges - Aviation Jobs (www.avjobs.com)
Maximum Salary
Labour Cost Implications

More median salaries above average than
below = higher overall salary cost than for
economy in general

Wide range in salaries, unionized labour;
senior international route pilots can earn up
to $190,000 USD per year

Majority of pensions are defined benefit:
higher salaries = significantly higher
pension obligations
Barriers to Operations
Gate access at airports can be a significant
barrier

Airports: generally locally owned authorities, lease
out gates to airlines for long terms

Exclusive use, preferential use, or common use

Signatory airlines receive preferential rates vs. non
signatory (most new entrants). ie: Pittsburgh Int’l
Airport non signatory rates min. 20% higher

FAA mandates that gate access be granted in a fair
and non-discriminatory manner. Regulations should
only maintain safety, not encourage dominance
Barriers to Operations

In practice, established airlines can exercise
significant dominance: gates are usually assigned
via non market practices (bidding). Ability to bid
depends on access. Large airlines can make
contributions to/lobby municipal governments to
restrict competing airlines’ access to airport

Majority in Interest (MII) clauses grant airlines
rights to approve airport capital improvement plans
(can restrict expansion to maintain monopoly
access to a “hot” airport)
Barriers to Operations
Therefore, a carrier’s ability to grow may not be
determined by its cost efficiency but rather by its
ability to land at high traffic destinations

FAA is currently reviewing gate lease practices in an
attempt to make access more equitable. However,
oversight still lies with the airport owner (local
authority)
Bottom Line
Airlines MUST reduce costs to
achieve a return to sustained
profitability.
Cost Minimization Strategies

Oil price forecasted to drop to $45-55 per barrel
range in 2007 (March 22 WTI spot:$60.82)
Cost Minimization Strategies
1a) Acquire more fuel efficient aircraft:

Current Long Range Aircraft Fuel Consumption
 Boeing 747-400 3.5 L/100 passenger KM
(Average)

New Long Range Aircraft Fuel Consumption
 Boeing 787: 2.4 L/100 passenger KM
 Airbus A380: 3.0 L/100 passenger KM
 Airbus A350: 3.0 L/100 passenger KM
Cost Minimization Strategies

1b) Acquire more regional jets:

Regional Jets
 Bombardier
CRJ 200 (50 seat): ~3.12L/100
passenger KM
 Bombardier CRJ 700 (78 seat): ~2.60L/100
passenger KM

All Russian aviation companies now
under one banner – United Airplane
Company. Focus will now be on Regional
Jets, which will be of great demand in
Russia.
Cost Minimization Strategies
1b) Acquire more regional jets:
• cost savings: Flights at capacity, lower cost (less
people required to maintain and fly aircraft)
SOURCE: Bombardier
SOURCE: Bombardier
Cost Minimization Strategies
2) Reduce Labour Costs
a) Increase labour productivity through additional
training, performance monitoring
b) Decrease salary/pension costs by:
•
•
•
hiring non-union workers where possible (new
divisions)
renegotiating existing salary contracts
phasing out defined benefit pension plans in favour of
defined contribution pension plans
Cost Minimization Strategies
3) Refine Business Model
•
Legacy airlines can employ 2 models:


point to point low cost model on domestic routes
traditional hub model on international routes.
Thus far, traditional airlines (especially US based ones)
have been entering bankruptcy protection to enable a
restructuring that encompasses all 3 strategies.
However, this is not exactly conducive to increasing
consumer and investor confidence
Growth Projections
China Traffic Growth
Growth Strategies
Focus on regions that are expected to yield
the highest rate of RPK growth:
• China & India:
 burgeoning
middle class now has resources to
travel.
 Increased trade and foreign investment means
increased number of foreign business people
visiting, and increased frequency of visits
Investment Criteria
Given the investors’ current distaste for airlines,
bargains could (?) be found
1) Cost efficiency:
•
•
fuel efficient fleet, appropriate business model,
reasonable labour costs (non union, or balanced union
power)
well funded pension obligations (defined contribution
superior)
2) Exposure, or plans to operate in future high
growth areas (China, India, Latin America)
3) Healthy financial structure; should not be overly
leveraged, reasonable CAPX
4) Enough market power to secure additional airport
access; ability to “withstand” competition from
other carriers at high traffic airports (dominate?)
Southwest Airlines
Company Snapshot
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Listed on: NYSE
Symbol: LUV
Industry: Regional Airlines
Market Cap: $14.14B
Stock Price: $17.65 (Closing 03/24/06)
Dividend Yield: .02 (0.10%)
P/E: 26.23
Shares Outstanding: 804,661,597
Background


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

1967: Incorporated in Texas (Rollin King and Herb Kelleher)
1971: Commenced service with 3 Boeing 737s serving
Dallas, Houston, and San Antonio
Short to medium-haul point-to-point regional carrier
Today: 448 Boeing 737s, 61 cities, 31 states
31,729 employees as of January 1, 2006
Posted 33rd consecutive year of profits in 2005
Largest US carrier based on originating US passengers
boarded and scheduled US departures
Mission

“Dedication to the highest quality of
customer service delivered with a sense of
warmth, friendliness, individual pride, and
company spirit.”

“… to provide our employees a stable work
environment with equal opportunity for
learning and personal growth.”
Key Officers

Herbert Kelleher

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
Gary Kelly
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
Position: Founder / Executive Chairman
Age: 74
Years of Service: 28
Position: CEO
Age: 50
Years of Service: 20
Colleen Barrett



Position: President
Age: 61
Years of Service: 28
Quick Facts
Average passenger airfare is $93.68
 Average passenger trip is 775 miles
 Ranked first in customer satisfaction
 Adopted the first profit sharing plan in
US airline industry in 1973


Employees own at least 10% of stock
Member of fortune 500
 Received 260,109 resumes and hired
2,766 new Employees in 2005

Destinations
Strengths & Weaknesses

Strengths

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
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Known for superior
customer service
Low-cost, no-frills
Direct one-way travel
Point-to-point
efficiency
Largest carrier for
domestic service
One fleet type
Hedge against
exposure to fuel
prices
Only airline rated
investment grade

Weaknesses



Point-to-point creates
excessive expenditure
Too many locations,
administrative costs
Risk to shocks in US
economy, since it is a
domestic carrier
Operating Expenses
2005 Operating Expenses
Wages & Benefits
Fuel
18%
Maintenance
40%
7%
Aircraft rentals
7%
Landing fees
2%
Depreciation &
amortization
6%
20%
Other
Fuel Costs
Fuel Costs
1600
1342
Cost (Millions)
1400
1200
1000
800
1000
771
762
2001
2002
830
600
400
200
0
2003
2004
2005
Year
Average Cost Per Gallon
1.2
1.03
1
Dollars
0.8
0.83
0.71
0.68
0.72
2001
2002
2003
0.6
0.4
0.2
0
Ye a r
2004
2005
Fuel Strategies

Consumed 1.3B gallons of jet fuel in 2005


2005: 85% at $26/barrel crude oil
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
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
Hedge on short and long term basis
Savings of $892 Million
2006:
2007:
2008:
2009:
65%
45%
30%
24%
at
at
at
at
$32
$31
$33
$35
Competition and Challenges
Increasing low fare and lower cost
competition
 Rising fuel costs
 Competition from surface
transportation in short-haul markets

Risk Factors
Business very sensitive to price of fuel
 Business is labour intensive


82% of employees are unionized
Relies heavily on technology for daily
operations
 Changes in government regulation can
have a major impact on business
 Airline industry is very competitive

Labour Unions
Employee Group
Union
CBA Expiry
CSRs
AFL-CIO
November 2008
Flight Attendants
TWU
June 2008
Field agents
TWU
June 2008
Pilots
SWPA
September 2006
Plane Technicians
AMFA
February 2009
Mechanics
AMFA
August 2008
Flight simulator
technicians
Teamsters
November 2011
Flight instructors
SWPIA
December 2012
Flight dispatchers
SWEA
December 2009
Stock clerks
Teamsters
August 2008
Aircraft Data
737 Type
Seats
Average
Age (Yrs)
# of
Aircraft
# Owned
# Leased
300
137
14.7
194
110
82
500
122
14.7
25
16
9
700
137
3.8
229
224
2
9.1
448
352
93
Totals
Operating Data
($’s in
millions)
2005
2004
2003
2002
2001
RPM (000s)
60,223,100
53,418,353
47,943,066
45,391,903
44,493,916
ASM (000s)
85,172,795
76,861,296
71,790,425
68,886,546
65,295,290
Load factor
70.07%
69.50%
66.78%
65.89%
68.14%
Financials
Revenue Composition
Revenue Composition 2005
Other
Freight
Passenger
Income Statement
Income Statement (Millions)
2005
2004
2003
2002
2001
7,279
6,280
5,741
5,341
5,379
Freight
133
117
94
85
91
Other
172
133
102
96
85
7,584
6,530
5,937
5,522
5,555
Salaries and benefits
2,702
2,443
2,224
1,993
1,856
Fuel and oil
1,342
1,000
830
762
771
430
457
430
390
398
-
-
-
55
103
Aircraft rentals
163
179
183
187
192
Landing fees and other rentals
454
408
372
345
311
Depreciation and amortization
469
431
384
356
318
Other operating expenses
1,204
1,058
1,031
1,017
976
Total operating expenses
6,764
5,976
5,454
5,105
4,925
820
554
483
417
630
Net interest and other
54
(65)
225
(24)
197
Income before taxes
874
489
708
393
827
Taxes
326
176
266
152
317
548
313
442
241
510
Operating Revenues
Passenger
Total operating revenues
Operating Expenses
Maintenance materials and repairs
Agency commissions
Operating income
Net Income
Income Statement Highlights

Profits increase 75% from 2004
33rd consecutive year for profits
 effective cost control measures
 Successful fuel hedging program


Net income fairly erratic
Balance Sheet (1/2)
Assets (Millions)
2005
2004
2003
2002
2001
2,280
1,048
1,865
1,815
2,279
Short-term investments
251
257
-
-
-
Accounts receivables
258
248
132
175
71
Inventories of parts and supplies
150
137
93
86
70
-
-
-
-
46
641
428
164
113
-
40
54
59
43
52,114
3,620
2,172
2,313
2,232
2,520
10,999
10,037
8,646
8,025
7,534
1,256
1,202
1,117
1,042
899
660
682
787
389
468
(3,488)
(3,198)
(3,107)
(2,810)
(2,456)
9,427
8,723
7,443
6,646
6,445
1,171
442
122
76
31
14,218
11,337
9,878
8,954
8,997
Current Assets
Cash and cash equivalents
Deferred income taxes
Fuel hedge contracts
Prepaid expenses and other current assets
Total current assets
Non-current assets
Flight equipment
Ground property and equipment
Deposits on flight equipment purchase contracts
Less depreciation and amortization
Total non-current assets
Other assets
Total Assets
Balance Sheet (2/2)
Liabilities and Stockholder's Equity
2005
2004
2003
2002
2001
Accounts payable
524
420
405
362
505
Accrued liabilities
2,074
1,047
650
529
548
649
529
462
412
450
Aircraft purchase obligations
-
-
-
-
222
Short-term borrowings
-
-
-
-
475
601
146
206
131
40
3,848
2,142
1,723
1,434
2,240
Long-term debt less current maturities
1,394
1,700
1,332
1,553
1,327
Deferred income taxes
1,896
1,610
1,420
1,227
1,058
Deferred gains from sale and leaseback of aircraft
136
152
168
184
192
Other deferred liabilities
269
209
183
134
166
7,543
5,813
4,826
4,532
4,983
Common stock
802
790
789
777
767
Capital in excess of par
424
299
258
136
50
4,557
4,089
3,883
3,455
3,228
892
417
122
54
(32)
-
(71)
-
-
-
6,675
5,524
5,052
4,422
4,013
14,218
11,337
9,878
8,954
8,996
Current liabilities
Air traffic liability
Current maturities of long-term debt
Total current liabilities
Total Liabilities
Stockholder's equity
Retained earnings
Accumulated other comprehensive income
Treasury stock
Total stockholders equity
Total liabilities and equity
Cash Flow Statement (1/2)
Cash flow from operations (millions)
2005
2004
2003
2002
2001
548
313
442
241
511
Depreciation and Amortization
469
431
384
356
318
Deferred income taxes
257
184
183
170
208
Amortization of sale and leaseback of aircraft
(16)
(16)
(16)
(15)
(15)
Amortization of scheduled airframe inspections
49
52
49
46
43
Income tax benefit from stock options exercises
65
35
41
38
54
(9)
(75)
43
(103)
67
Other current assets
(59)
(44)
(19)
(10)
(9)
Accounts payable and accrued liabilities
855
231
129
(149)
203
Air traffic liability
120
68
50
(38)
73
Other
(50)
(22)
50
(16)
32
2,229
1,157
1,336
520
1,485
Net Income
Adjustments to net income:
Changes in assets and liabilities:
Accounts and other receivables
Net cash flow from operations
Cash Flow Statement (2/2)
Cash flow from investing (millions)
2005
2004
2003
2002
2001
(1,210)
(1,775)
(1,238)
(603)
(998)
6
124
(381)
-
-
(6)
(34)
-
-
-
Debtor in possession loan to ATA airlines
-
(40)
-
-
-
Other
-
(1)
-
-
-
(1,210)
(1,726)
(1,619)
(603)
(998)
300
520
-
385
614
Proceeds from revolving credit facility
-
-
-
-
475
Proceeds from trust arrangement
-
-
-
119
266
132
88
93
57
44
(149)
(207)
(130)
(65)
(111)
Payments of trust arrangement
-
-
-
(385)
-
Payments of revolving credit facility
-
-
-
(475)
-
Payments of cash dividends
(14)
(14)
(14)
(14)
(13)
Repurchase of common stock
(55)
(246)
-
-
-
(1)
(8)
3
(4)
(5)
213
133
(48)
(382)
1,270
Net change in cash
1,232
(436)
(331)
(465)
1,757
Cash at beginning of period
1,048
1,484
1,815
2,280
523
Total cash at end of period
2,280
1,048
1,484
1,815
2,280
Purchases of property and equipment
Change in short-term investment
Payment for assets of ATA airlines
Net cash flow from investing
Cash flow from financing
Issuance of long-term debt
Proceeds from employee stock plans
Payments of long-term debt
Other
Net cash flow from financing
Cash Flow Analysis
(dollars in
millions)
2005
2004
2003
2002
2001
Cash Flow
From
Operations
2,229
1157
1,336
520
1485
Free Cash
Flow
1,019
(569)
98
(83)
487
Cash Flow Analysis
Erratic free cash flow
 CF from operations increased 83%

increase in accounts payable
 Higher net income in 2005


CF from investing used mainly to
purchase new planes

33 new planes in 2005
$300M in debt issued in 2005
 $520M in debt issued in 2004

Stock Chart (1 Year)
Stock Chart (5 Year)
Price Comparison
Profitability Comparison
Southwest
2005
2004
2003
2002
2001
ROE (%)
8.21
5.67
8.75
5.45
12.71
ROA (%)
3.85
2.76
4.47
2.69
5.67
Profit Margin (%)
7.23
4.79
7.44
4.36
9.18
Discount Airlines
2005
2004
2003
2002
2001
ROE (%)
5.83
10.98
5.56
-10.09
24.73
ROA (%)
-14.36
-54.38
-14.89
-11.66
-3.45
6.73
11.6
8.51
10.5
2.46
Profit Margin (%)
Industry
2005
2004
2003
2002
2001
ROE (%)
-2.14
-3.37
0.74
27.03
-149.58
ROA (%)
-14.36
-54.38
-14.89
-11.66
-3.45
Profit Margin (%)
-4.46
1.64
-4.55
-5.82
0.06
Other Ratios
Southwest
2005
2004
2003
2002
2001
Current Ratio
0.94
1.01
1.34
1.55
1.13
Debt/Equity
0.21
0.31
0.26
0.35
0.33
Discount Airlines
2005
2004
2003
2002
2001
Current Ratio
1.53
1.81
1.74
1.62
1.33
Debt/Equity
98.33
86.96
97.69
-174.02
-29.77
Industry
2005
2004
2003
2002
2001
Current Ratio
1.15
1.22
1.15
1.18
1.09
Debt/Equity
-77.15
86.72
234.36
-27.41
2,626.20
Recommendation
HOLD
+




Excellent management
Proven business strategy
33 consecutive years of profit
Steady dividends




Intense competition
Low profit margins
Erratic cash flow
Seasonal industry
Thank You Come Again!!
Singapore Airlines
Background
•
•
•
•
•
Founded in 1972.
National airline of Singapore.
Second largest carrier by market value.
Full member of global Star Alliance.
Route network reaches out to over 90
destinations in close to 40 countries.
• Numerous awards.
• Trades in US as an ADR (Symbol: SPAAF).
Global Route Map
Recent Awards
TIME
Readers' Travel Choice Awards 2005
Preferred Airline
Preferred First/Business Class
Best Frequent Flyer Programme
Business Traveller (China)
Best Airline in the World
Best Asian Airline Serving China
Commonwealth Magazine (Taiwan)
The Most Admired Company 2005 Awards
Winner - Airline Industry Category (8th year)
Asia Risk Magazine (HK)
Asia Risk Awards 2005
Corporate Risk Manager of the Year
TTG Asia Travel Awards
Hall of Fame 2005
Travel Inside, Sabre, Swiss Postal Services, JPM Magazines (Switzerland)
Golden Travel Star Award 2005 – SIA Switzerland (12th consecutive year)
Global Finance Magazine (US)
Global Finance Award 2005 (Airlines Sector)
Best Airlines Company – Asia
Best Airlines Company - Global
Subsidiaries
• SIA Group consists over 50 subsidiaries and
associates, including:
– SilkAir
– SIA Engineering Company (SIAEC)
– Singapore Aero Engine Services Private Limited
(SAESL)
– Singapore Aircraft Leasing Enterprise (SALE)
– Singapore Airlines Cargo (SIA Cargo)
– Singapore Airport Terminal Services (SATS)
– Singapore Flying College
Ownership in Other Airlines
• Virgin Atlantic Airways (49%)
– Operates long-haul routes between London
and North America, the Caribbean, Africa,
Asia and Australia.
• Tiger Airways (49%)
– A low-cost airline based in Singapore.
– Singapore's first true low-cost carrier.
– Destinations encompass airports within a four
hour flying radius of Singapore.
Group Fleet
List of Major Shareholders
Temasek Holdings
• Temasek Holdings
– Owns and manages the Singapore
Government's direct investments, both locally
and overseas.
– Singapore Ministry of Finance is the single
shareholder of Temasek Holdings.
DBS and Raffles
• DBS
– Set up in 1968 as a development financing
institution led by the Singapore government.
– Major shareholders include DBS, Raffles, and
Temasek.
• Raffles Holdings
– Owned by Temasek and CapitaLand (which in
turn is owned by Temasek).
– Singapore Airlines is also a shareholder.
Objectives for Future Growth
• Re-engineer business to meet any challenger
head-on.
• Develop a sustainable business position through
careful cost management and planning.
• Continue to work hard to access the heavyprotected Trans-Pacific route between Australia
and the USA.
• Launch the world’s largest aircraft, Airbus A380,
in 2006.
Airbus A380
• “First to fly the A380 experience the
difference in 2006.”
• Double-decker, fourengined airliner.
• Largest passenger
airliner in the world,
topping the Boeing
747, which was the
largest for 35 years.
Current Stock Information
As of March 24, 2006
• Price: 14.70
• 52-week range: 11.00 - 14.90
• Shares outstanding: 1.22 billion
• Market capitalization: $17.93 billion
• Exchange rate: 0.72 CAD/SGD
• Dividend yield: 0.68%
Revenue Composition
3-months Chart
1-year Chart
5-year Chart
Key Ratios
Debt-toEquity
Profit
Margin
Return on
Equity
48.42%
10.30%
8.56%
Industry
64.15%
(International)
-4.46%
-2.14%
SIA
Recommendations
Don’t Buy!
AIR CANADA
Background







Began on April 10, 1937, called Trans-Canada
Airlines, subsidiary of Canadian National
Railway
Changed name to Air Canada since January 1,
1965.
In 1989, Air Canada was completely privatized.
In January 2000, acquired Canada’s second
largest air carrier, Canadian Airlines.
On April 1, 2003, filed for bankruptcy protection.
On September 30, 2004, emerged from
bankruptcy protection.
ACE Aviation Holdings Inc. (ACE) is the new
parent of Air Canada.
ACE Aviation Holdings Inc. (ACE)

Operating companies
and partnerships:







Air Canada
Air Canada Cargo
ACGHS Limited
Parternership
Air Canada Jazz
Air Canada Technical
Services(ACTS)
Touram Limited
Partnership-(Air Canada
Vacations)
Aeroplan Limited
Partership (85.6%)
Current Stock Information
As of March 24, 2006
 Ticker symbol: TSX: ACE.RV.T
 Price: $34
 52-week range:$30.25-$43.03
 Shares outstanding: 76,852,830
 Market capitalization: 2,612,996,220
 Dividend yield: 0
 P/E Ratio: 12.928
2005 Operating Revenues
Others, 10%
Cargo, 6%
Passenger
Cargo
Others
Passenger,
84%
2005 Operating Expenses
Air Canada and Jazz





They contribute to the passenger
transportation revenue
Purchases substantially all of Jazz’s fleet
capacity based on predetermined rates
Jazz currently operates scheduled passenger
service on behalf of Air Canada
They linked their regional and mainline
networks to serve connecting passengers
more efficiently
They provide direct passenger air
transportation to 159 destinations
Business Strategy
1.
Competitive cost structure

2.
Redesigned network to maximize efficiency
and leverage international growth
opportunities

3.
Increase used of large regional jet aircraft
Customer Driven Revenue Model for
Passenger Services

4.
Lower average salaries, sales and distribution
costs
Offer five simple fare types ranging from low
one-way fares to Executive Class fares
New corporate structure to maximize the
value of subsidiaries
Hubs
Toronto Pearson International Airport
is the largest hub.
 Montréal-Pierre Elliott Trudeau
International Airport European hub
and Atlantic Canada hub
 Vancouver International Airport hub
for Pacific operations
 Calgary International Airport focus
city

Air Canada’s Fleet

Air Canada’s operating fleet, excluding Jazz
aircraft, at December 31, 2005:
Air Canada’s Future Fleet
Available Seat Miles (ASMs)
Revenue Passenger Miles (RPMs)
Passenger Load Factor (PLF)
Canada
Up 0.4 pp
US Transborder
Up 2.7 pp
Other International
Up 1.4 pp
• Compare Q4 2005 to Q4 2004
Passenger Revenue per Revenue
Passenger Mile (Yield)
Passenger Revenue per Available Seat
Mile (RASM)
Average Salary and Employees
Hedges

Fuel hedges 2005 to 2007


Increase hedge position of approximately
4% per month to approximately 50% of
anticipated jet fuel requirements
Foreign currency contracts

Forward contracts and option agreements
on US$521 million of future purchase
Financial Statements
Financial Analysis
ACE
North
American
Airlines
63.72%
All
Airlines
Profit margin 2.62%
-6.97%
-4.46%
ROE
-4.76%
-2.14%
Debt/Equity
914%
22.09%
64.15%
Stock Price – 1 Year
Stock Price – Since Incorporation
Recommendation
SELL