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Aegean Airlines | Staying at cruising altitude

Outstanding 2022 performance, underpinned by pent-up demand … – Aegean exceeded the 2019 profitability mark in 2022 driving strong cash generation thanks to healthy volumes (traffic +73% yoy, -17% vs 2019) and very robust pricing (fares +14% yoy). The strong top line (revenues +98% yoy, +2% vs 2019) more than fully offset the inflationary pressures (with unit fuel costs +63% yoy), thereby driving an impressive rebound in profitability, with FY’22 EBITDA at €275m, 2% above 2019 despite the elevated fuel bill. This translated into net profit >€100m, significantly above the 2019 mark. On the cash flow front, 2022 underlying FCF of €140m (€106m reported) helped Aegean boost its net cash position to c€260m (excl. capitalized leases).

2023: growth to continue unfettered, healthy demand-supply balance – While we anticipate cost challenges to remain, with fuel costs likely to stay elevated (but with unit costs slightly down on a yoy basis), the incremental c€20/pax rise in 2022 fares vs 2019 will provide a cushion to profitability, even on our assumption for a modest yoy drop in 2023e fares (-6%). The supply-demand balance looks quite healthy, with solid booking indications and a reasonable capacity uptick (in the middle single-digits). Overall, we are looking for a c16% yoy growth in 2023e revenues (+18% vs 2019), driven by c20% growth in ASKs and c5pps uptick in load factors, which we expect will be similar to 2019 levels. This filters through to EBITDA growth of 9% (with revenue growth partly diluted by our assumption for c17% yoy growth in costs (in the first fully operational post-covid year), corresponding to a reported number near €300m. We expect 2024e EBITDA to increase c15% yoy on c10% higher sales, amid decelerating growth in costs.

Investment plans intact – Aegean’s healthy balance sheet allows it to proceed with its re-fleeting plans, with our forecasts eyeing a positive net balance between purchases and refunds on advances from sale-lease-backs, with room for raising the owned vs leased fleet balance. Our numbers also incorporate the training and MRO center investment (€140m). We expect a year-end 2023 fleet of 76 aircraft (+7 net change). Having in mind Aegean’s investment plans, we expect somewhat depressed FCF this year (just above €30m) before a bounce to c€60-150m in the next 2 years.

Valuation – Aegean stock price remains c5% below its pre-pandemic levels, despite the fact that its profitability has bounced above the 2019 mark. On our numbers, the current valuation appears to be pricing in normalized earnings c7-15% lower than our forecast for 2023e, quite punitive in our view given our conservative assumptions (especially the c6% yoy decline in fares). We value Aegean applying a mid-cycle EV/EBITDAR multiple of 5.5x on 2023e, slightly increased vs our previous number reflecting the higher visibility on 2023 profitability underpinned by strong booking trends and healthy pricing. We lift our PT to €9.00/share accordingly. We note that we conservatively factor in a re-instatement of the dividend in 2024, although an earlier resumption is also likely given the equity build-up run-rate.