Aegean Airlines: stellar summer, but visibility limited on 2023E (downgraded to HOLD)

Aegean’s 3Q22 exceeded our elevated expectations by a significant margin. With a RPK yield 21% above 3Q19, the EBITDA reached EUR 198m, the highest on record, beating our estimate by around EUR 50m. The strong performance also pushed the liquidity up to EUR 619m by end-September, a c.EUR 20m improvement from the already strong end-June level. We have updated our forecasts to account for the c.30% beat. On this year’s earnings, Aegean trades at c.3.5x EV/EBITDA, well below its long-term pre COVID-19 average of 4.5-5.0x. That said, we see the risk of a deterioration of purchasing power across Europe weighing on next year’s results, especially if fuel prices remain elevated and the CASK is affected by wider inflationary pressures. The ongoing re-fleeting into the A320neo family should ensure that its cost base – ex-fuel CASK comparable to EZJ and well below the European full-service majors – stays competitive. At the same time, the leases on new aircraft are likely to push the net debt higher, especially as long as the USD remains strong. If demand and pricing stay strong, resuming dividends could become a topic, maybe in 2024-25E. That said, in the near term, with little visibility on bookings beyond November, we see the upside as limited, considering the substantial increase in leasing liabilities driving the net debt higher. We adjust our 12M price target (PT) to EUR 5.5/share, and downgrade the stock to HOLD (from Buy).