Aegean Airlines: Sweet summer sun (upgraded to BUY)

Following the EUR 60m capital increase and EUR 120m of state aid, Aegean is well-capitalised, and has sufficient liquidity to continue to transition into the more efficient neos. The company is actually accelerating its neo deliveries: by YE23E, over half of Aegean’s seat capacity should be on neos, we estimate. An efficient fleet will be ever more important, in our view, given the likely increases in fuel costs in the years ahead, driven by rising CO2 prices and, potentially, higher taxation. The fleet transition should help Aegean maintain its unit costs leadership (it has been much more efficient than the European full service majors historically). Aegean’s data for July and August suggest that the summer has exceeded our expectations – on both the number of passengers (c.65% of the 2019 level) and pricing (on the whole, fares are reportedly comparable with the 2019 levels). The coming autumn and winter period is seasonally weak, usually. The operational cash burn will restart, and the company will be facing PDPs outflows as well. Combined with the limited visibility on potential COVID-19 related restrictions this autumn and winter, the share price, in the very near term, could be choppy, and there could be a better entry point ahead. That said, following the recapitalisation, we believe that the stock – trading at 4.0x EV/EBITDA on our 2022E – is an attractive play on the travel recovery ahead. Fully focused on short-haul leisure traffic, Aegean should enjoy a steep recovery of traffic next summer, and we believe that our 2022E estimates leave room for a positive surprise. We have upgraded the stock to BUY, setting our new 12M price target (PT) at EUR 6.0/share.