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Aegean Airlines | Flying high

Another upgrade on more resilient yields – 2024 looks set to be far more resilient than embedded in our previous estimates, given the strong demand and reasonable capacity additions in the remainder of the year. The improved outlook is manifested in our upgraded 2024e, where we fine tune our unit revenue assumption now envisaging flat yields yoy. On the cost side, we factor in the agreement with Pratt & Whitney on a compensation scheme for the grounding of the Airbus Family neo fleet, underlying cost containment and lower unit fuel costs, now forecasting just 0.5% growth in 2024e CASK (EBITDAR level). As such, we lift our 2024e EBITDA by c14% to €415m, now anticipating c+4% yoy growth compared with a c9% decline incorporated in our previous estimate, with 2024 marking another record year for the Greek flag carrier.

…leveraging on the strong 2023 performance and a strong Q1’24 – Aegean delivered a 46% surge in 2023 EBITDA (49% above 2019 levels) as a result of resilient yields, c20% growth in available seats, expansion of load factors close to pre-COVID levels (c83%) and declining unit fuel costs (-9%). Aided by favorable FX (c€26m) 2023 net profit shaped at €170m. The solid performance has continued into Q1’24 (a seasonally small quarter), with Aegean EBITDA growing 72% yoy on +17% revenue growth.

Mid-single digit 3-yr EBITDA CAGR on offer – Looking ahead, we contemplate contained capacity growth for Aegean (+4-5% yoy) amid rolling engine maintenance of the fleet, a similar c5% annual in passengers and flattish fares, thus modeling c5% annual revenue growth. With this in mind, and given Greek tourism is in structural growth, we do not expect the overall demand/supply backdrop to weigh materially on pricing. Against this backdrop, and assuming that the compensation of costs (owing to fleet grounding) will continue to moderate elevated costs in both 2025-26e, we raise our EBITDA forecasts by c10-14% in 2025-26e, thus envisaging 2025e EBITDA at €438m and 2026e at€462m (+5% CAGR).

Balance sheet optionality reinstated – Since the trough of 2020 Aegean has managed to grow its financial net cash (ex-leases) position by a whopping >€430m (>40% of the market cap), affirming not only the resilience of the business model (favourable working capital dynamics) but also the mgt’s ability to navigate challenging times effectively. 2024 has seen the buyback of the warrants (€85m), which will absorb just a small part of liquidity (end Q1’24 net cash position at c€510m). In the meantime, Aegean resumed dividend payments (>40% payout, paid in May), effectively returning to normality. This rare combination of growth and yield was a key part of the Aegean investment thesis prior to COVID, and with FCF generation set to remain strong post 2025e, we estimate cash returns of c6-7% in the next 3 years.

Valuation – We apply a DCF valuation model (predicated on 10% WACC). The earnings upgrade result in the lifting of our 12-mth PT to €17.8 (up from €13.8/share previously). The valuation looks compelling, in our view, with the stock at c20% discount to mid-cycle EV/EBITDA levels. We thus reiterate our Buy rating.