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Aegean Airlines | Navigating cloudy skies

Revenues: on the path to normality – Aegean Airlines is the purest Greek play on international inbound tourism, enjoying an international market share of c35-40% at its core Athens hub. With its total flying activity still 42% below pre-COVID levels in 2021, translating into revenues some 48% lower than pre-pandemic levels, the group is primed for a significant revenue bounce-back in 2022 as a result of the easing of COVID restrictions and the reopening impulse. Assuming capacity deployed retraces to c89% of normal levels this year, we envisage revenues of c€1.1bn, still c13% lower than pre-pandemic levels. We expect revenues to exceed pre-COVID levels in 2023, but this largely hinges on the demand/pricing environment.

Capacity vs demand backdrop: positive indications for the summer, though visibility into the winter remains low – Competitors seem to be planning to deploy c7-10% higher summer capacity than in 2019, channeled primarily to the islands. On its part, Aegean will place roughly similar capacity vs the 2019 period, as it mainly focuses on bolstering load factors. On the demand side, booking momentum appears strong, quite natural in our view given the pent-up demand after 2 years of COVID-induced limitations. Against this backdrop, we believe it is reasonable to expect the pricing environment to be fairly robust during the summer months, namely at the peak of the leisure period. That said, visibility into the winter is low, since besides a potential new wave of COVID, airlines also have to contend with the spike in energy prices and the impact this might have on travel demand. Overall, we have assumed revenues per pax +2.3% in 2022 and +1% in 2023.

Costs: fuel bites but fare increases likely to mitigate the impact – Fuel costs have spiked since the war, with jet fuel hovering above $1,000/mt. On our estimates, fuel cost inflation will translate into an incremental c€6 cost/passenger over 2022-2026e vs 2019 levels, assuming Brent in the $80-90 area. From a sensitivity perspective we estimate that a c$10/bbl further Brent move translates into a c9% hit to 2022 EBITDA, resulting in €15-16m higher fuel bill. For 2023, given the lower hedging position, we estimate this amount doubles to c€30m (c13% EBITDA hit). To fully offset a $10/bbl movement in the oil price through pricing, we calculate that Aegean would need to push through a further c2% fare increase in 2023 (on top of our +2% assumption).

Valuation – Aegean emerged strong after COVID thanks to self-help actions (cost control, new services, fleet flexibility), state support (€120m grant) and the €60m cash injection. On that basis, its outlook is certainly challenging but far less uncertain than that of other airlines. From a price perspective, the stock has performed broadly in line with EU airlines still standing some 40% below pre-COVID levels. On our estimates, the current EV seems to price in normalized earnings a bit lower than our 2023e forecast, effectively ignoring the prospect for a faster bounce in profitability as tourism trends normalize. We reiterate our Buy with an unchanged PT, as the 2-4% downgrade to our 2022-23e EBITDA is offset by the rolling forward of our valuation. We caveat though that near-term price momentum will be prone to swings in risk perception depending on geopolitical/COVID developments.