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AEGEAN AIRLINES | Cloudy Horizons, Strong Wings

Rising capacity weighing somewhat on 2025e outlook; we now expect mid single digit rise in 2025e EBITDA – With AIA capacity additions up double digits in H1’25, we raise our forecasts for Aegean’s capacity by 2%, now modelling +6% annual ASK growth in 2025e. We expect this supply backdrop to raise the bar for demand growth to sustain yields, thus envisaging mild pressure on pricing and stable load factors for 2025e. Against this backdrop, we have lowered our revenue forecasts by 1% in 2025e, which, combined with the rising capacity (c6%) and elevated costs from the fleet grounding, lead our EBITDA forecast c4% lower. As such, we forecast 2025e EBITDA of €422m, on revenues of €1.87bn (+6% yoy), while we see 2025e net profit to €143m (+11% yoy) and c6% below our previous forecast owing to elevated depreciation and financial costs as Aegean’s fleet continues expanding (5 neo aircraft annual additions in 2025-27e).

…following a mixed 2024e – 2024 proved quite challenging, with several headwinds (fleet grounding, FX) and tailwinds (higher than anticipated drop in fuel costs), but in general robust yields (+1% yoy). That said, the c4% increase in CASK weighed on profitability, with EBITDA likely to have settled flattish yoy and bottom line results likely to be >20% lower yoy. Still, this level of profitability is c50-60% higher than the pre-COVID period, a material re-set for Aegean’s profit base.

Post 2025e: mid-single digit growth algorithm? – Looking ahead, we contemplate c5% capacity growth for Aegean as new deliveries kick in, and a similar c5% annual rise in pax (following +8% in 2025e). We assume flattish average fares post 2025, thus modelling c6% annual revenue growth in 2026-27e. Against this backdrop and assuming that the fleet grounding compensation will end by 2026e, as elevated emission costs feed in, we lower our EBITDA forecasts by c5%, expecting EBITDA to reach €450m (+4% CAGR) by 2027e.

>7% dividend yield caps the downside in our view – Aegean has managed to maintain a healthy financial position (2.4x adj. net debt/EBITDA) despite continuous investments in fleet expansion, thanks to its solid cash generation capacity (10-yr average FCF conversion rate of c45-50% as % of EBITDA). In the meantime, Aegean repaid the State warrants in 2024 (€85m) and resumed dividend payments (>40% payout), signalaeing the return to normality. Having in mind past dividend policy (60-90% historically) and the need to balance fleet growth with shareholder returns, we assume a payout of c50% which corresponds to a yield near 7-8%, a level which caps the downside in our view.

Valuation – We apply a DCF valuation model rolling to 2025e (predicated on 10% WACC). The downward revision to our earnings brings our 12-mth PT lower to €15.6 (from €17.8/share previously). After a disappointing – from a share price performance perspective – year (with the shares returning -5% in 2024), echoing the muted operating momentum, the valuation looks compelling, in our view, with the stock at c15% discount to mid-cycle EV/EBITDA levels. We thus reiterate our Buy rating.