1) The document analyzes Southwest Airlines (ticker: LUV) and recommends it as a buy. LUV has maintained low costs through operating a single aircraft type and point-to-point routes.
2) It has grown to be the largest US carrier by passengers while continuing to demonstrate low costs, though its cost advantage over competitors is decreasing. LUV has had 43 consecutive years of profitability.
3) Recent restrictions lifts and acquisitions like AirTran have expanded LUV's scope of operations and potential for market share growth domestically and internationally. However, international operations remain a small portion of its business currently.
Fellowship Investments CFA Research ChallengeRoland Smith
The document summarizes an analysis of NIC Inc. (EGOV), which provides eGovernment services to state and local governments. Key points include:
- A sell recommendation is issued with a $16 target price, representing potential downside of 2.8%.
- Growth opportunities are diminishing at the state level as some states choose in-house solutions or award contracts to competitors.
- The largest contract with Texas represents 22% of revenue and faces increased competition.
- The federal market is important for future growth but remains unproven for EGOV given the size of competitors already involved.
This report analyzes Delta Air Lines' current market position and future outlook. It finds that Delta is one of the largest airlines in the world but saw huge revenue losses in 2020 due to the COVID-19 pandemic. The report recommends that Delta expand into the growing Asian business travel market to generate more international revenue. Specifically, it suggests that Delta launch a TikTok account, advertise its technology to attract business travelers, and establish its own Asian subsidiary for business travel by 2026.
The automotive industry is undergoing significant transformation driven by new technologies, changing consumer preferences, and stricter regulations. Original equipment manufacturers and suppliers must navigate these challenges by strategically managing investments across regions with varying economic conditions, developing new connected and autonomous vehicle technologies, and improving fuel efficiency to meet stricter emissions standards. While traditional combustion engines will remain dominant, automakers must work with new technology partners to develop innovative features that enhance the customer experience. Risk-taking on new materials and powertrain technologies will be necessary to improve performance within regulatory requirements. Successfully navigating this period of disruption will require strategic agility from all industry players.
Mc Kinsey & Company - The road to 2020 and beyondLionel Martins
The document discusses trends in the global automotive industry and projections out to 2020. It finds that while overall profits for automakers have recovered since the financial crisis, their sources have shifted significantly. Profits are increasingly coming from emerging markets like China rather than Europe, Japan, and South Korea. By 2020, emerging markets are expected to account for about two-thirds of total industry profits. China alone will be responsible for over half of the projected $25 billion increase in profits industry-wide by 2020. North America remains profitable but established markets in Europe and Asia will see little profit growth. The key challenges automakers face are complexity/costs, adapting to diverging regional markets, meeting digital demands, and a shifting competitive landscape.
Mercer Capital's Value Focus: Transportation & Logistics | Q3 2021 | Feature...Mercer Capital
Mercer Capital's Transportation & LogisticsIndustry newsletter provides perspective on valuation issues. Each newsletter also typically includes macroeconomic trends, industry trends, mergers and acquisitions review, and guideline public company metrics.
Mercer Capital's Value Focus: Auto Dealer Industry | Year-End 2018Mercer Capital
Mercer Capital's Auto Dealer Industry newsletter provides perspective on valuation issues. Each newsletter also includes macroeconomic trends, industry trends, and guideline public company metrics.
Etude PwC marché automobile mondial (2013)PwC France
http://pwc.to/1cligbS
D’après les dernières prévisions de PwC Autofacts, institut d’analyse du marché automobile de PwC, l’assemblage de véhicules légers devrait atteindre au niveau mondial 81,8 millions d'unités en 2013, soit un gain de 3,3% sur un an.
- Three multinational companies, ShoeCo, CareCo, and MedCo are considering entering the Ethiopian market.
- The document provides background on Ethiopia's economy, market reforms, industries, and business environment.
- It analyzes each company's financial projections, strengths/weaknesses, and recommends the best market entry strategy for each as either a local agent, licensing, joint venture, or subsidiary.
Fellowship Investments CFA Research ChallengeRoland Smith
The document summarizes an analysis of NIC Inc. (EGOV), which provides eGovernment services to state and local governments. Key points include:
- A sell recommendation is issued with a $16 target price, representing potential downside of 2.8%.
- Growth opportunities are diminishing at the state level as some states choose in-house solutions or award contracts to competitors.
- The largest contract with Texas represents 22% of revenue and faces increased competition.
- The federal market is important for future growth but remains unproven for EGOV given the size of competitors already involved.
This report analyzes Delta Air Lines' current market position and future outlook. It finds that Delta is one of the largest airlines in the world but saw huge revenue losses in 2020 due to the COVID-19 pandemic. The report recommends that Delta expand into the growing Asian business travel market to generate more international revenue. Specifically, it suggests that Delta launch a TikTok account, advertise its technology to attract business travelers, and establish its own Asian subsidiary for business travel by 2026.
The automotive industry is undergoing significant transformation driven by new technologies, changing consumer preferences, and stricter regulations. Original equipment manufacturers and suppliers must navigate these challenges by strategically managing investments across regions with varying economic conditions, developing new connected and autonomous vehicle technologies, and improving fuel efficiency to meet stricter emissions standards. While traditional combustion engines will remain dominant, automakers must work with new technology partners to develop innovative features that enhance the customer experience. Risk-taking on new materials and powertrain technologies will be necessary to improve performance within regulatory requirements. Successfully navigating this period of disruption will require strategic agility from all industry players.
Mc Kinsey & Company - The road to 2020 and beyondLionel Martins
The document discusses trends in the global automotive industry and projections out to 2020. It finds that while overall profits for automakers have recovered since the financial crisis, their sources have shifted significantly. Profits are increasingly coming from emerging markets like China rather than Europe, Japan, and South Korea. By 2020, emerging markets are expected to account for about two-thirds of total industry profits. China alone will be responsible for over half of the projected $25 billion increase in profits industry-wide by 2020. North America remains profitable but established markets in Europe and Asia will see little profit growth. The key challenges automakers face are complexity/costs, adapting to diverging regional markets, meeting digital demands, and a shifting competitive landscape.
Mercer Capital's Value Focus: Transportation & Logistics | Q3 2021 | Feature...Mercer Capital
Mercer Capital's Transportation & LogisticsIndustry newsletter provides perspective on valuation issues. Each newsletter also typically includes macroeconomic trends, industry trends, mergers and acquisitions review, and guideline public company metrics.
Mercer Capital's Value Focus: Auto Dealer Industry | Year-End 2018Mercer Capital
Mercer Capital's Auto Dealer Industry newsletter provides perspective on valuation issues. Each newsletter also includes macroeconomic trends, industry trends, and guideline public company metrics.
Etude PwC marché automobile mondial (2013)PwC France
http://pwc.to/1cligbS
D’après les dernières prévisions de PwC Autofacts, institut d’analyse du marché automobile de PwC, l’assemblage de véhicules légers devrait atteindre au niveau mondial 81,8 millions d'unités en 2013, soit un gain de 3,3% sur un an.
- Three multinational companies, ShoeCo, CareCo, and MedCo are considering entering the Ethiopian market.
- The document provides background on Ethiopia's economy, market reforms, industries, and business environment.
- It analyzes each company's financial projections, strengths/weaknesses, and recommends the best market entry strategy for each as either a local agent, licensing, joint venture, or subsidiary.
Disruptive Trends That Will Transform The Automotive IndustryStradablog
Technology-driven trends will revolutionize how industry players respond to changing consumer behavior, develop partnerships, and drive transformational change.
Korean Film & Broadcasting Content IndustryJeehyun Moon
The document discusses the increasing importance of "tentpole" projects in the film and broadcast content industries. Tentpoles are defined as hit titles that provide steady cash flow, such as blockbuster films or top-rated television programs. The success of tentpole projects can offset losses elsewhere and make earnings more predictable. Major companies in film distribution and broadcasting, such as Disney and CJ E&M, follow tentpole strategies. The report also predicts earnings growth for content companies in 2015 backed by the release of tentpole films and projects overseas.
The document discusses trends in the Indian auto industry. It notes that commercial vehicle segments like light commercial vehicles saw positive growth, while medium and heavy commercial vehicles declined due to high bases of growth in the previous year. Passenger cars and utility vehicles grew by 12% and 11% respectively due to new model launches. Two-wheeler sales declined 4.9% due to economic slowdown and high interest rates. The auto components industry saw production growth of 12% but margins are expected to remain under pressure due to slowing auto demand. The budget provided some relief through reduced excise duties on certain vehicles.
The document discusses trends in the Indian auto industry. It notes that commercial vehicle segments like light commercial vehicles saw positive growth, while medium and heavy commercial vehicles declined due to high bases of growth in the previous year. Passenger car sales grew 12% due to new models. Utility vehicles also saw strong growth. However, two-wheeler sales declined 4.9% due to economic slowdown and financing issues. The auto components industry saw 12% production growth but margins are expected to remain under pressure due to slowing auto demand. The budget provided some stimulus with reduced excise duties on certain vehicles.
The document discusses trends in the Indian auto industry. It notes that commercial vehicle segments like light commercial vehicles saw positive growth, while medium and heavy commercial vehicles declined due to high bases of growth in the previous year. Passenger car sales grew 12% due to new models. Utility vehicles also saw strong growth. However, two-wheeler sales declined 4.9% due to economic slowdown and financing issues. The auto components industry saw 12% production growth but margins are expected to remain under pressure due to slowing auto demand. The budget provided some stimulus with reduced excise duties on certain vehicles.
The document provides an overview of the automotive industry and various trends in Q2 of 2016. It discusses topics like European cars becoming lighter to meet emissions standards, augmented reality enhancing navigation systems, and new technologies like steering sensors and alcohol sensors to curb drunk driving. It also mentions that the global automotive sales in 2016 are expected to reach 75 million vehicles.
This document provides an analysis of investment opportunities across various sectors, equities, and fixed income assets as part of a U.K. hedge fund portfolio. Specifically, it sees opportunities in consumer discretionary, technology, and communications sectors due to economic expansion. Individual stock picks highlighted for their growth potential include Amazon, SuperCom Ltd., Tesla, Netflix, and Disney based on factors like revenue growth, market opportunities, and financial ratios. The portfolio aims to outperform benchmarks like the S&P 500 through these cyclical and growing positions.
ETHIOPIA: AN EMERGING MARKET OPPORTUNITYBisher Yousfi
Description of Assignment:
Using the information available in the case, plus your work in the pre-work (economic analysis on Ethiopia) to support your arguments, make a recommendation as to whether any of the companies in the case should enter Ethiopia, and explain why.
North american auto aftermarket frost 0211 soaringvjr
This document provides a 360-degree perspective on trends in the North American automotive aftermarket industry. It discusses anticipated growth in vehicle maintenance and repairs as more cars age. It also covers political, regulatory, technology, and consumer trends influencing the industry, as well as an analysis of industry participants and best practices. Key areas of focus include the shift from original equipment to aftermarket parts, opportunities in electric and hybrid vehicles, and the roles of various distribution channels in the changing industry landscape.
China Auto 2020: China to Account for 35% Global Market France Houdard
1. The document discusses opportunities and challenges for global automotive companies in China's growing market. It analyzes China's expanding middle class, urbanization trends, and the country's expected rise to account for 35% of the global auto market by 2020.
2. Automotive companies are aggressively expanding their supply chain operations in China to capitalize on the market potential. This includes numerous new plant and R&D center announcements. However, investing in China presents challenges around regulations, due diligence, and negotiations.
3. R&D functions are increasingly migrating to China to access the large pool of engineering graduates as well as be closer to the Chinese market. While early R&D models focused on local adaptation
South Africa - Country and IT Market Study (Summary)Zinnov
South Africa as a Emerging destination for IT & Technology adoption has an IT spending of $ 10.8 Bn and the YoY growth expected in 2012-13 stands at 9%.
The document provides an analysis of several industries in India including telecommunications, automobiles, pharmaceuticals, information technology, petroleum, paints, and power and energy. It discusses key metrics for each industry such as total sales, growth projections, major companies, sales figures, profits, number of employees, and BCG and Ansoff matrices. Reasons cited for both working and not working in each industry are also summarized.
Auto Parts Manufacturing Industry Report - HF_L. TamakloeLiana Tamakloe
The auto parts and equipment manufacturing industry derives about 95% of its demand from the automobile manufacturing industry. Recent positive economic indicators in the US, such as expected GDP growth of 3.4% in 2015 and low unemployment, are expected to increase consumer spending and automobile demand, which will benefit the auto parts industry. While the outlook is positive, the growth drivers are transitory, so a market weight is recommended for the industry. Risks include increased competition from imports if the strong US dollar persists and slow global economic growth reducing overseas demand.
The document provides an overview of strategic factors for firms considering investment in India. It analyzes the country environment including strong economic growth, large consumer market, and improving infrastructure. Government policy aims to increase foreign investment and competition. Local competitors have innovative low-cost products and access to rural consumers. The resources, capabilities, and objectives of multinational companies are also discussed, as well as key strategic choices around greenfield investment, acquisitions, and partnerships.
This document provides an analysis of the Canadian Pacific and Norfolk Southern railroad companies and the US railroad industry. It includes an industry analysis covering future growth potential, industry life cycle, barriers to entry, concentration, capacity changes, stability, technology investments, and government regulations. Company backgrounds and financials are presented for Canadian Pacific and Norfolk Southern. A merger recommendation and pro forma financials are provided showing the benefits of a merger between the two companies, with Canadian Pacific advised to continue pursuing a merger deal with Norfolk Southern.
2018 Automotive Aftermarket Year-End WebinarQUIXX USA -
2018 started strong for the Aftermarket. Frequent and sustained winter storms that hung around well past their welcome helped our industry grow +4.0% in dollars through November; December brought the number down to +2.5%
According to this year's Global Innovation 1000 study -- an examination of the 1,000 public companies that spend the most on researching and developing products for their markets -- the world's major innovators are shifting more of their R&D to software and services. The shift is being driven by the supercharged pace of improvement in what software can do, the increasing use of embedded software and sensors in products as varied as power turbines and cars, and rising customer expectations. Between 2010 and 2015, the companies in the Global Innovation 1000 study increased their R&D spending on software offerings by 65 percent and their spending on service offerings by 36 percent. As this shift intensifies, companies are facing an array of managerial, organizational, and cultural challenges.
The document provides an overview of the long-term market outlook for commercial airplanes from 2017-2036. It discusses three key drivers of airplane demand: 1) strong growth in demand for air travel driven by economic and income growth, particularly in emerging markets, 2) ongoing regulatory liberalization and infrastructure investment, and 3) commitments by the aviation industry to reduce its environmental impact through new fuel efficiency and emissions standards. The aviation industry has made progress decoupling traffic growth from emissions growth and has set ambitious goals for further reducing emissions by 2050.
Arthur D. Little - Global Automotive Market Report September 2021Fabrizio Arena
Please take a look at our Automotive Report – September 2021 with Global market overview and main registrations results in Europe and Italy
Please note that this issue also includes a Focus on Supply shortage impact on Automotive Market
Industrias Peñoles is a Mexican mining company that is the world's largest producer of refined silver and a leading Latin American producer of refined gold. It has operations in precious metals, base metals, and chemicals. The company owns mines in Mexico and is exploring new projects. It is recommended to buy Peñoles stock due to positive outlooks for precious metals prices, a strong US dollar, and Peñoles' competitive positioning and growth projects. The target price of MXN$566 per share represents a 17.9% projected return.
CFA Research Challenge - Equity Research Report - G4S Rory Blundell
This document provides an investment recommendation and analysis of G4S plc. It recommends holding G4S shares with a target price of 243p based on discounted cash flow analysis and focuses on the company's future capital structure. Key points include G4S undergoing organizational changes like disposing of non-core businesses and improving core activities. It is also focusing on organic growth and reducing debt. Emerging markets are seen as growth areas while some reputational issues remain in the UK.
Disruptive Trends That Will Transform The Automotive IndustryStradablog
Technology-driven trends will revolutionize how industry players respond to changing consumer behavior, develop partnerships, and drive transformational change.
Korean Film & Broadcasting Content IndustryJeehyun Moon
The document discusses the increasing importance of "tentpole" projects in the film and broadcast content industries. Tentpoles are defined as hit titles that provide steady cash flow, such as blockbuster films or top-rated television programs. The success of tentpole projects can offset losses elsewhere and make earnings more predictable. Major companies in film distribution and broadcasting, such as Disney and CJ E&M, follow tentpole strategies. The report also predicts earnings growth for content companies in 2015 backed by the release of tentpole films and projects overseas.
The document discusses trends in the Indian auto industry. It notes that commercial vehicle segments like light commercial vehicles saw positive growth, while medium and heavy commercial vehicles declined due to high bases of growth in the previous year. Passenger cars and utility vehicles grew by 12% and 11% respectively due to new model launches. Two-wheeler sales declined 4.9% due to economic slowdown and high interest rates. The auto components industry saw production growth of 12% but margins are expected to remain under pressure due to slowing auto demand. The budget provided some relief through reduced excise duties on certain vehicles.
The document discusses trends in the Indian auto industry. It notes that commercial vehicle segments like light commercial vehicles saw positive growth, while medium and heavy commercial vehicles declined due to high bases of growth in the previous year. Passenger car sales grew 12% due to new models. Utility vehicles also saw strong growth. However, two-wheeler sales declined 4.9% due to economic slowdown and financing issues. The auto components industry saw 12% production growth but margins are expected to remain under pressure due to slowing auto demand. The budget provided some stimulus with reduced excise duties on certain vehicles.
The document discusses trends in the Indian auto industry. It notes that commercial vehicle segments like light commercial vehicles saw positive growth, while medium and heavy commercial vehicles declined due to high bases of growth in the previous year. Passenger car sales grew 12% due to new models. Utility vehicles also saw strong growth. However, two-wheeler sales declined 4.9% due to economic slowdown and financing issues. The auto components industry saw 12% production growth but margins are expected to remain under pressure due to slowing auto demand. The budget provided some stimulus with reduced excise duties on certain vehicles.
The document provides an overview of the automotive industry and various trends in Q2 of 2016. It discusses topics like European cars becoming lighter to meet emissions standards, augmented reality enhancing navigation systems, and new technologies like steering sensors and alcohol sensors to curb drunk driving. It also mentions that the global automotive sales in 2016 are expected to reach 75 million vehicles.
This document provides an analysis of investment opportunities across various sectors, equities, and fixed income assets as part of a U.K. hedge fund portfolio. Specifically, it sees opportunities in consumer discretionary, technology, and communications sectors due to economic expansion. Individual stock picks highlighted for their growth potential include Amazon, SuperCom Ltd., Tesla, Netflix, and Disney based on factors like revenue growth, market opportunities, and financial ratios. The portfolio aims to outperform benchmarks like the S&P 500 through these cyclical and growing positions.
ETHIOPIA: AN EMERGING MARKET OPPORTUNITYBisher Yousfi
Description of Assignment:
Using the information available in the case, plus your work in the pre-work (economic analysis on Ethiopia) to support your arguments, make a recommendation as to whether any of the companies in the case should enter Ethiopia, and explain why.
North american auto aftermarket frost 0211 soaringvjr
This document provides a 360-degree perspective on trends in the North American automotive aftermarket industry. It discusses anticipated growth in vehicle maintenance and repairs as more cars age. It also covers political, regulatory, technology, and consumer trends influencing the industry, as well as an analysis of industry participants and best practices. Key areas of focus include the shift from original equipment to aftermarket parts, opportunities in electric and hybrid vehicles, and the roles of various distribution channels in the changing industry landscape.
China Auto 2020: China to Account for 35% Global Market France Houdard
1. The document discusses opportunities and challenges for global automotive companies in China's growing market. It analyzes China's expanding middle class, urbanization trends, and the country's expected rise to account for 35% of the global auto market by 2020.
2. Automotive companies are aggressively expanding their supply chain operations in China to capitalize on the market potential. This includes numerous new plant and R&D center announcements. However, investing in China presents challenges around regulations, due diligence, and negotiations.
3. R&D functions are increasingly migrating to China to access the large pool of engineering graduates as well as be closer to the Chinese market. While early R&D models focused on local adaptation
South Africa - Country and IT Market Study (Summary)Zinnov
South Africa as a Emerging destination for IT & Technology adoption has an IT spending of $ 10.8 Bn and the YoY growth expected in 2012-13 stands at 9%.
The document provides an analysis of several industries in India including telecommunications, automobiles, pharmaceuticals, information technology, petroleum, paints, and power and energy. It discusses key metrics for each industry such as total sales, growth projections, major companies, sales figures, profits, number of employees, and BCG and Ansoff matrices. Reasons cited for both working and not working in each industry are also summarized.
Auto Parts Manufacturing Industry Report - HF_L. TamakloeLiana Tamakloe
The auto parts and equipment manufacturing industry derives about 95% of its demand from the automobile manufacturing industry. Recent positive economic indicators in the US, such as expected GDP growth of 3.4% in 2015 and low unemployment, are expected to increase consumer spending and automobile demand, which will benefit the auto parts industry. While the outlook is positive, the growth drivers are transitory, so a market weight is recommended for the industry. Risks include increased competition from imports if the strong US dollar persists and slow global economic growth reducing overseas demand.
The document provides an overview of strategic factors for firms considering investment in India. It analyzes the country environment including strong economic growth, large consumer market, and improving infrastructure. Government policy aims to increase foreign investment and competition. Local competitors have innovative low-cost products and access to rural consumers. The resources, capabilities, and objectives of multinational companies are also discussed, as well as key strategic choices around greenfield investment, acquisitions, and partnerships.
This document provides an analysis of the Canadian Pacific and Norfolk Southern railroad companies and the US railroad industry. It includes an industry analysis covering future growth potential, industry life cycle, barriers to entry, concentration, capacity changes, stability, technology investments, and government regulations. Company backgrounds and financials are presented for Canadian Pacific and Norfolk Southern. A merger recommendation and pro forma financials are provided showing the benefits of a merger between the two companies, with Canadian Pacific advised to continue pursuing a merger deal with Norfolk Southern.
2018 Automotive Aftermarket Year-End WebinarQUIXX USA -
2018 started strong for the Aftermarket. Frequent and sustained winter storms that hung around well past their welcome helped our industry grow +4.0% in dollars through November; December brought the number down to +2.5%
According to this year's Global Innovation 1000 study -- an examination of the 1,000 public companies that spend the most on researching and developing products for their markets -- the world's major innovators are shifting more of their R&D to software and services. The shift is being driven by the supercharged pace of improvement in what software can do, the increasing use of embedded software and sensors in products as varied as power turbines and cars, and rising customer expectations. Between 2010 and 2015, the companies in the Global Innovation 1000 study increased their R&D spending on software offerings by 65 percent and their spending on service offerings by 36 percent. As this shift intensifies, companies are facing an array of managerial, organizational, and cultural challenges.
The document provides an overview of the long-term market outlook for commercial airplanes from 2017-2036. It discusses three key drivers of airplane demand: 1) strong growth in demand for air travel driven by economic and income growth, particularly in emerging markets, 2) ongoing regulatory liberalization and infrastructure investment, and 3) commitments by the aviation industry to reduce its environmental impact through new fuel efficiency and emissions standards. The aviation industry has made progress decoupling traffic growth from emissions growth and has set ambitious goals for further reducing emissions by 2050.
Arthur D. Little - Global Automotive Market Report September 2021Fabrizio Arena
Please take a look at our Automotive Report – September 2021 with Global market overview and main registrations results in Europe and Italy
Please note that this issue also includes a Focus on Supply shortage impact on Automotive Market
Industrias Peñoles is a Mexican mining company that is the world's largest producer of refined silver and a leading Latin American producer of refined gold. It has operations in precious metals, base metals, and chemicals. The company owns mines in Mexico and is exploring new projects. It is recommended to buy Peñoles stock due to positive outlooks for precious metals prices, a strong US dollar, and Peñoles' competitive positioning and growth projects. The target price of MXN$566 per share represents a 17.9% projected return.
CFA Research Challenge - Equity Research Report - G4S Rory Blundell
This document provides an investment recommendation and analysis of G4S plc. It recommends holding G4S shares with a target price of 243p based on discounted cash flow analysis and focuses on the company's future capital structure. Key points include G4S undergoing organizational changes like disposing of non-core businesses and improving core activities. It is also focusing on organic growth and reducing debt. Emerging markets are seen as growth areas while some reputational issues remain in the UK.
Owens Corning is a global building materials company with leadership positions in composites, roofing, and insulation. It underwent restructuring in 2015 to improve efficiency. Owens Corning has grown earnings through cost cutting, plant closures, and a focus on high-margin products. It holds the number one market share position for composites in North America and Europe. Initiating coverage with a Buy rating and $50.48 target price based on valuation models and 18.6% upside from current price.
Walsh University CFA Challenge Report (1)Jerad Kitzler
- Signet Jewelers is initiated as a buy recommendation with a one-year target price of $142.50 per share. Revenue growth is forecast to be rapid in Fiscal 2016 as Signet integrates the Zale division, followed by declining growth. Synergies from the Zale acquisition will increase profitability and efficiency.
- Signet operates over 3,500 stores under brands like Kay Jewelers, Zales, H. Samuel, and Ernest Jones. It aims to be the largest specialty retailer of jewelry in the US, Canada, and UK.
- The report provides an overview of Signet's divisions including Sterling, Zale, and UK. It also discusses the jewelry industry, season
Bloomin' Brands is recommended as a buy with an 11.85% upside potential. It has strong domestic and international growth prospects through its portfolio of restaurant brands like Outback Steakhouse. Domestically, sales and traffic continue to outperform peers. Internationally, the global casual dining market is growing faster than the US market, allowing for expansion opportunities. Improving margins through cost savings initiatives and strong operating cash flow provide additional upside to the stock.
The document summarizes a research report on Jack in the Box, Inc. produced by students for the CFA Institute Research Challenge hosted by CFA Society San Diego and San Diego State University. The report recommends maintaining a "HOLD" position on Jack in the Box stock, with an upside potential of 12.5% based on a target price of $99.12 per share. It highlights Jack in the Box's focus on growing its Qdoba fast casual brand and generating stable cash flows from its franchise business.
The document is a presentation analyzing Hecla Mining Company for an investment recommendation. It provides an overview of Hecla and the silver and gold mining industries. Key points include Hecla being the largest silver producer in America, analysis of competitors and industry forces, Hecla's financial performance and ratios, valuation of Hecla's reserves using discounted cash flow, and risks facing Hecla including regulatory changes. The presentation concludes with a recommendation to buy Hecla stock with a target price of $7.62, representing 20.2% upside from the current price.
Assisted in the Financial Analysis and mathematical modeling. My part consisted of calculating key financial ratios, DuPont Analysis, Monte Carlo, and projection analysis (Pro-Forma) for the Income Statement and Balance sheet for a 5-year time horizon.
The document is a research report recommending a BUY rating for shares of Bel, a French dairy company, with a target price of €399, implying 33% upside potential. The report cites Bel's efficient business model, strong positioning for growth in healthy and on-the-go consuming trends, and ability to pursue acquisitions as reasons to believe the stock is undervalued compared to peers and offers attractive growth and dividend prospects despite some risks relating to currency exchange rates and commodity prices.
Apple Hospitality REIT is recommended as a Buy with a target price of $20.06. Key points include:
- Apple maintains low leverage and debt levels compared to peers, funding future acquisitions through its credit facility.
- The portfolio of 179 hotels across 32 states provides geographic diversification and consistent performance across diverse demand drivers.
- Demand is expected to continue outpacing new hotel room supply through 2017. Apple focuses on upscale select service hotels where new room growth will be strong.
- Valuation analyses including DCF, NAV, and peer comparisons estimate Apple's fair value at $20.52, supported by a monthly dividend yield of 6.56%, balance sheet capacity
1) Express Scripts is the largest pharmacy benefit manager (PBM) in the US but faces slowing growth as its core business reaches maturity. It lacks a compelling valuation and trades around its estimated fair value.
2) Intensifying competition in the pharmaceutical industry may lead to price wars that threaten Express Scripts' business model of aggressively negotiating lower drug prices.
3) Given Express Scripts' maturing business and risks to future growth, investors have an opportunity to realize gains by selling their shares in the company.
This document provides a stock analysis and recommendation for Axalta Coating Systems Ltd. (AXTA). It summarizes AXTA's business operations, financial performance, and competitive positioning. Based on a quantitative valuation model and qualitative analysis, the document issues a "sell" recommendation on AXTA stock with a target price of $18.38, believing the company has a long-term growth rate of 2.49% per year. Risks to the investment thesis include volatility in Latin American markets and potential slowing of growth in China.
CFA Research Challenge - Autogrill SpA - UniPV TeamAlessandro Greppi
Team Leader - Università degli Studi di Pavia
Objective of the competition: writing an initiation of coverage report on the listed Italian company
Autogrill S.p.A.
Cfa research presentation university at buffalo Ke Guo
The document provides an analysis of Columbus McKinnon Corporation (CMCO), a manufacturer of material handling products. Some key points:
- CMCO is the #1 manufacturer of hoists, tire shredders, cranes, and other material handling products in the US.
- Hoists make up 58.9% of revenue. CMCO has invested in R&D and acquisitions to grow.
- A DCF valuation estimates CMCO's fair value at $25.73 per share, while relative valuation estimates $23.77-$27.16 per share.
- The analysis identifies CMCO's strong market position but notes risks from competition and economic cycles.
Cfa l1 exam formula & concepts sheet 2013analystbuddy
AnalystBuddy is an online CFA exam preparation provider that offers comprehensive study materials including study notes, practice questions, flash cards, mock exams, and more for $69 per exam. Users can also try the materials for free by visiting their website at www.AnalystBuddy.com. The provider aims to help users save time and money in preparing for the CFA exam.
The document summarizes key concepts from chapters 6-14 of a finance textbook relating to risk and return, time value of money, bonds, stock valuation, cost of capital, capital budgeting, and cash flow estimation. It defines terms like expected rate of return, risk measures like standard deviation and beta, bond and stock valuation methods, weighted average cost of capital (WACC), net present value (NPV), internal rate of return (IRR), modified IRR, payback period, and cash flow items like net operating working capital, operating cash flow, and free cash flow. Formulas and calculator instructions are provided for computing many of these concepts.
Our accounting professor permitted us to use one 8x11 sheet of paper during our comprehensive final exam. Within a short amount of time I laid out all the major concepts we covered along with my own notes/examples. I also recruited Pac Man to help out with making room for our final chapter topics.
Edit: Full res version here --> http://www.joejan6.com/scratch/GuideSheet13.pdf
Turn the next 12 days into a productivity makeover at work! These easy-to-implement tips, one for each day, are a perfect refresher.
Find out more about Redbooth at https://redbooth.com
Southwest Airlines And The World Largest Low Cost CarrierMonica Turner
The document discusses the external factors influencing the global airline industry from a European perspective. It analyzes the industry using PESTEL factors from 2003 and how they have changed since. Key factors included terrorism post-9/11 which reduced air travel, economic downturns hurting profits, and rising oil prices. Low-cost carriers emerged as a competitive strategy with their business model discussed. Their future prospects in Europe depend on maintaining low costs while demand and economies recover from challenges like terrorism and recessions.
NOTE This Industry overview is only a starting point for your an.docxhenrymartin15260
NOTE: This Industry overview is only a starting point for your analysis. Environment and industry issues can change rapidly and some of the information here may therefore be out-of-date.
You MUST supplement this information with additional research.
The Airline Industry
4940- Summer, 2014
Few inventions have changed how people live and experience the world as much as the invention of the airplane. During both World Wars, government subsidies and demands for new airplanes vastly improved techniques for their design and construction. Following World War II, the first commercial airplane routes were set up in Europe. Over time, air travel has become so commonplace that it would be hard to imagine life without it. The airline industry certainly has progressed. It has also altered the way in which people live and conduct business by shortening travel time and altering our concept of distance, making it possible for us to visit and conduct business in places once considered remote.
The airline industry exists in an intensely competitive market. In recent years, there has been an industry-wide shakedown, which will have far-reaching effects on the industry's trend towards expanding domestic and international services. In the past, the airline industry was at least partly government owned. This is still true in many countries, but in the U.S., all major airlines have come to be privately held. The U.S. airline industry has been in a chaotic state for a number of years. According to the Air Transport Association, the airline industry’s trade association, the loss from 1990 through 1994 was about $13 billion, while from 1995 through 2000, the airlines earned about $23 billion and then lost about $35 billion from 2001 through 2005. Against this backdrop of poor financial performance, dramatic changes in industry structure have occurred. Growth in air passenger traffic has outstripped growth in the overall economy and the U.S. airline industry remains in the midst of an historic restructuring. Over the last five years, U.S. network airlines have reduced their annualized mainline costs excluding fuel by more than 25%, or nearly $20 billion.
While some of the cost savings realized in the industry were the product of identifying greater operational efficiencies, most of the savings were generated by renegotiation of existing contractual arrangements with creditors, aircraft lessors, suppliers and airline employees and achieved either through the bankruptcy process itself or under threat of bankruptcy. A portion of industry capacity still operates in bankruptcy. But, it is down from a high of 46 percent in 2005. As a result, several carriers that were near liquidation now have lower cost structures that should allow them to show improved performance.
Economic profile of the Air line industry: The airline industry has always exhibited cyclicality because travelers' demand is sensitive to the performance of the macro economy yet airl.
Three sentences:
JetBlue is a low-cost airline headquartered in New York serving over 100 destinations. The document analyzes JetBlue's industry, business model, financial performance and risks to value the company. A financial model was created assuming revenue and cost growth rates to estimate JetBlue's stock value at $38.56, an upside of 75% from its current price.
JetBlue Airways has differentiated itself from competitors by providing extra amenities like satellite TV and radio on every seat. However, operational issues from unsustainable growth, high fuel prices, and fleet costs led to losses in 2006. While demand for air travel is growing internationally as more countries see rising economies, JetBlue faces threats from fluctuating demand, increasing fuel costs, customer complaints, and strong competition from other major airlines.
Southwest AirlinesBusiness model Low cost, low-fare.docxrafbolet0
Southwest Airlines
Business model: Low cost, low-fare
Competitive outlook: Evolver, Uncertain
Of the three carriers covered in this post, Southwest Airlines is perhaps the most vulnerable to understanding its overall strategic fit in serving the domestic US market, along with its slowly growing trans-border market served via subsidiary carrier AirTran.
The harsh reality is, Southwest is the oldest low-cost carrier and the largest domestic US carrier. It celebrated its 40th birthday earlier this decade, and operates a fleet of nearly 700 aircraft. While it's cost base is still below that of JetBlue's at 6.76 cents for 2012, it's passenger unit revenue growth was relatively flat at 2.6%, while JetBlue's was 3.6%. Couple this with pressure mounting from legacy US carriers that have been able to lower their unit costs through Chapter 11 reorganizations and consolidation, and the situation is slightly worrisome. When American Airlines filed for bankruptcy in November 2011, Southwest CEO Gary Kelly sent out a memo to all employees that great customer service could not overcome high costs, and that lowering them became a high priority for the airline.
Revenue growth is also going to be a huge area of consideration. As stated above, much of Southwest's areas of critical need can be exposed by pointing towards competitor JetBlue. From a product perspective, JetBlue offers up-sells and frills that appeal to the business traveler: priority boarding, seat selection, extra legroom, security-screening, second checked bag and some premium products such as movies. Southwest offers few similar, overlapping amenities, and also misses out on revenue by not charging for change and cancellation fees, although it recently stated plans to implement a no-show fee. Passengers traveling on subsidiary AirTran branded flights still pay luggage fees, which the carrier will continue to collect until both airlines are fully integrated. No final decisions have been announced as to which checked bag policy will prevail over the other once they are merged.
Network growth is also a challenge. Unlike JetBlue, and to a lesser degree, Spirit, Southwest's growth into international markets is retarded by a much more conservative mindset and roll-out strategy. International services can only be supported on AirTran's infrastructure, but the carrier is slowly building up new services to markets in Mexico and the Caribbean from a diversified portfolio of gateway cities in California, Colorado, Florida, Illinois and Texas. However, many of the new nonstop city parings announced have pre-existing competition.
Finally, the AirTran acquisition was strategic in allowing Southwest to expand its network in a low-profile manner, launching its first international push and gaining access to Atlanta. However, the acquisition has not been painless; Southwest has cut many of AirTran's services to under-performing, smaller markets and de-hubbed Atlanta. It has also removed AirTran's Busin.
Read Case 10 Southwest Airlines. Answer questions 1-4 in a three.docxcatheryncouper
Read Case 10: Southwest Airlines. Answer questions 1-4 in a three to five page APA style paper, and supported with the concepts outlined in your text and from your previous classes.
1. Describe the current state of the airline industry and analyze what an airline can do to be successful in the current industry climate.
2. Perform a SWOT analysis for Southwest Airlines.
3. Assess the competitive position of Southwest Airlines by completing a competitor profile for Southwest airlines and at least two of its major competitors.
4. What alternatives does Southwest Airlines face to address the problem of declining financial performance?
Southwest Airlines 2008
1 In 2008, Southwest Airlines (Southwest), the once scrappy underdog in the U.S. airline industry, carried more domestic passengers than any other U.S. airline. The company, unlike all of its major competitors, had been consistently profitable for decades and had weathered recessions, energy crises, and the September 11 terrorist attacks. In the first quarter of 2008, the company was profitable and experienced record first quarter revenue and a record pas- senger load factor (percentage of available seats sold). However, the earnings release made it clear that the “threat of volatile and unprecedented jet fuel prices” was a major issue that threatened future growth. Operating expenses were rising, and Southwest announced that it would cut 2009 growth in available seats to less than 3%. Over the previous decade, growth had been about 5–10% a year. This cut in planned growth was consistent with previous responses to difficult environments. An insight into Southwest’s operating philosophy can be found in the company’s 2001 Annual Report:
Southwest was well poised, financially, to withstand the potentially devastating hammer blow of September 11. Why? Because for several decades our leadership philosophy has been: We manage in good times so that our Company and our People can be job secure and prosper through bad times. . . . Once again, after September 11, our philosophy of managing in good times so as to do well in bad times proved a marvelous prophylactic for our Employees and our Shareholders.
THE U.S. AIRLINE INDUSTRY
The U.S. commercial airline industry was permanently altered in October 1978 when Presi- dent Carter signed the Airline Deregulation Act. Before deregulation, the Civil Aeronautics Board regulated airline route entry and exit, passenger fares, mergers and acquisitions, aattract and retain the world’s top talent have combined to create a combination of path-dependent resources that are very difficult for even the wealthiest software and Internet companies worldwide to easily emulate, acquire, or accelerate. It will take years for any competitor to develop the expertise, infrastructure, reputation, and capabilities to compete effectively with Google. Coca-Cola’s brand name, Gerber Baby Food’s reputation for quality, and Steinway’s exper- tise in piano manufacture would ta ...
Southwest Airlines is the largest domestic airline in the US, serving over 100 destinations. It operates only Boeing 737 aircraft, which allows for low maintenance costs. Southwest has pursued a strategy of cost reduction, completing the integration of AirTran Airlines and growing its frequent flyer program to increase revenue. It generated record profits in 2014 but faces increasing competition in the domestic market. The report recommends Southwest expand internationally and into cargo to access new growth opportunities.
CASE 16 Southwest Airlines Andrew Inkpen and ex.pdfezycolours78
CASE 16 Southwest Airlines Andrew Inkpen and exit, passenger fares, mergers and
acquisitions, and In 2013. Southwest Airlines (Southwest), the once scrappy routes covered by
only one carrier. Cost increases were of the largest in the world. The company, unlike all of its
were only two market segments: those wio coald afford tn terrorist attacks, and the 2008-og
recession. An insight many new firms to enter the market. The finaticial impact airline rates of
return. Typically, two or three carriers were You are now free to move about the country
provided service in a given market, although there underdog in the US. airline industry, was one
of the larg passed along to customers, and price competition was ere est US airlines and, based
on number of passengers, one almost nonexistent. The airlines operal major competitors, h to fly,
and those who couldn\'t decades and had weathered energy crises, the September ad been
consistently profitable for Deregulation sent airline fares tumbl allowed into Southwest\'s
operating philosophy can be found in on both established and new airlines was eirmous. The fuel
crisis of 1979 and the air traffic controilers strike e company\'s 2001 annual report Southwest
was well poised, financially, to withstand in 1981 contributed to the industry\'s diffiruities, as did
the potentially devastating hammer blow of September ii the severe recession that hit the United
Stales during Why? Because for several decades our leadership phi the early 198os. During the
first decade of deregulation losophy has been: we manage in good times so that our more than
15o carriers, many of them start-up airlines Company and our People can be job secure and
prosper collapsed into bankruptcy. Eight of the u major air through bad times.... Once again,
after September in, our lines dominating the industry in 1978 ended up filing philosophy of
managing in good times so as to do well for bankruptcy, merging with other carriers, or simply
in bad times proved a marvelous prophylactic for our disappearing from the radar screen.
Collectively, the industry made enough money during this period to buy As Southwest entered
its 4and year of service, the two Boeing 747s. The three major carriers that survived company
was facing some major challenges. Legacy intact-Delta, United, and American ended up with
carriers in the United States had become more efficient, 80% of all domestic U.S. air traffic and
67% of trans- Employees and our Shareholders and the recent mega-mergers involving
Delta/Northwest, Atlantic business. Exhibits 1A and iB provide summary Continental/United,
and American/US Airways were shaking up the industry. Smaller companies like jetBlue,
financial data for the major airlines. The rapid growth of Southwest was in stark contrast to the
much slower aska, and Spirit were pressuring Southwest\'s cost growth of its major competitors
advantage and low-fare focus. A major internal c Competition and lower fares led to greatly
expanded of AirTra.
Southwest Airlines is the largest domestic air carrier in the US. It focuses on short routes with frequent, convenient flights and low fares using a fleet of over 500 Boeing 737 aircraft. Strengths include its point-to-point operating strategy, young aircraft fleet, and steady revenue increases. Weaknesses include reliance on passenger revenues and lower aircraft occupancy rates. Opportunities exist in air freight growth, industry expansion, and strategic partnerships. Threats include competition, rising fuel costs, and economic downturns.
- The airline industry faced many challenges both before and after 9/11, including revenue drops, bankruptcies, and high leverage.
- 9/11 had a devastating immediate impact, grounding all flights for 3 days and causing long-term declines in travel due to fears.
- Both major airlines and low-cost carriers struggled in this new environment of high fuel costs, economic downturns, and less flying. The industry faced pressure to consolidate and restructure to improve long-term sustainability.
Should Coastal Flight Airlines expand into Europe by forming an.docxwrite5
Coastal Flight Airlines is considering expanding into Europe through an international airline alliance. Key factors to consider include:
- Cultural differences between the US and Europe could impact service offerings.
- Fleet commonalities with alliance partners could provide efficiencies but also complications.
- Coastal Flight's union-friendly culture differs from some European LCCs like Ryanair, requiring effort to reconcile.
- Government regulations restrict alliances and joint ventures, requiring regulatory approval.
This document provides an overview of Lufthansa Airlines, the largest airline in Europe. It discusses Lufthansa's history, operations, subsidiaries, and role as a founding member of the Star Alliance. It also describes the airline industry in general, noting it is fairly young but grew significantly during and after World War II due to advances in technology. The industry remains cyclical with typically low profit margins and is heavily impacted by fuel costs.
The document analyzes competition in the US airline industry using Porter's Five Forces model. It determines that the industry is an oligopoly, with four major carriers (Delta, Southwest, United, American) dominating the market. Airlines compete on pricing, using dynamic pricing strategies like yield management to adjust prices based on demand, time of booking, and other factors. This allows airlines to practice forms of price discrimination. While competition is present, barriers to entry are high for new airlines due to industry regulations, scale requirements, and brand dominance of the major carriers.
- The document analyzes Southwest Airlines (LUV), recommending it as a Buy. LUV operates passenger airlines in the US and internationally, with a focus on customer service.
- Key points include LUV's consistent profitability over 43 years, recent expansion into international markets which is expected to boost revenue and earnings, and benefits from low jet fuel prices which have increased margins.
- The recommendation is based on expectations for continued revenue growth, higher margins due to fuel prices, and upside from international expansion and share repurchases, with a price target of $42.40 representing 18.8% upside from the current price. However, risks include potential fuel price increases and industry capacity growth.
This document discusses potential "black swan" events that could significantly impact long-term aviation forecasts and reduce projected fleet growth. It presents scenarios where weaker development of low-cost carriers, increased efficiency in passenger load and seating density, rationalization among Middle Eastern carriers, and a combination of factors could each reduce the expected fleet size in 2033 by 1-16% compared to manufacturer projections. The document advocates for scenario-based forecasting that considers potential step changes rather than relying solely on extrapolating historical trends.
Low-cost carriers (LCCs) weathered the 2007-2009 financial crisis better than full-service carriers through tactics like expanding capacity on new routes while others cut capacity. While LCC revenue grew, profits fell less sharply due to higher load factors and ancillary fees. LCCs recovered revenues faster than full-service carriers but profits more slowly due to fuel costs. Scale did not correlate with higher profits per passenger - the largest LCC earned less than smaller but more profitable LCCs. LCCs demonstrated higher productivity through metrics like profits per aircraft and employee.
Unlike the runways of the world, the growth trend line in the aviation sector has never been straight. Long-term growth has been punctuated by demand shocks that rein in investment and impact traffic. With investors in mind, this series of articles looks at the factors that impact aviation growth, transactions, infrastructure needs, and ultimately drive air connectivity. More: http://pwc.to/1uEPT4e
The document discusses the challenges facing the US airline industry, including rising costs, excess capacity, and increased competition from low-cost carriers. It notes that the industry's financial problems predate 9/11 and that major restructuring will be needed for the legacy carriers to adapt to current market conditions and regain profitability. Code-sharing agreements between carriers are seen as one way to cut costs through increased cooperation.
Similar to Final CFA Challenge Trinity University Team Submission (20)
Final CFA Challenge Trinity University Team Submission
1. CFA Institute Research Challenge
Hosted by:
CFA Societies Texas, Louisiana, New Mexico and
Oklahoma
Local Challenge- Southwest US
Trinity University
2. CFA Institute Research Challenge February 5, 2016
1
Sector: Transportation
Industry: Airline
Ticker: LUV (NYSE) 52 Week Range: $31.36 – $51.34
Current Price: $35.69 Recommendation: BUY
Investment Thesis
We issue a BUY recommendation at $35.00 (69% upside.) Based off our
multiple valuation, Southwest (LUV) has an intrinsic value of $59.21, yielding
downside risk of -20%.
Low-cost advantage
The foundation of LUV success has been its ability to keep its costs low. The
basis of this low-cost structure is their focus on operating only one type of plane,
as well as operating as a point-to-point carrier. Although the industry as a whole
is very capital intensive, LUV stands out as the most efficient capital allocator
within its peer group. Currently, LUV is undergoing fleet modernization, where
they are retiring some of their older planes and introducing newer planes that
have higher capacity and are thus more fuel efficient.
Industry Consolidation
During the recovery from the last recession, the airline industry as a whole
transformed to become much more cost efficient through consolidation. As
Southwest was created with the purpose of being a low-cost carrier, they were
untouched by the large scale industry consolidation and left the other carriers
chasing their low cost structure. LUV has grown into the largest carrier of
passengers in the US while continuing to demonstrate maintenance of their low
costs. Although their low-cost advantage against the industry is decreasing, they
have been the only airliner to post 43 consecutive years of profitability, a trend
that is not expected to change.
Market Growth Potential
Initially, LUV was limited to where they could operate, capping their market
exposure to mainly Texas because the Wright Amendment. In late 2004, the
restrictions from the Wright Amendment began to be lifted from LUV and they
were able to expand to neighboring states, and in 2014 all restrictions were lifted.
During the time of the restrictions, LUV was able to capture an immense amount
of market share because they were able to offer much lower fares due to their
low-cost structure. With all restrictions lifted, LUV can service all 50 states, as
well as expand internationally. The recent acquisition of AirTran also expands
their scope of operations, and will continue to enable them to capture more
market share.
Figure 1
Source: Estimates
Figure 2
Source: Southwest 10k
Figure 3
Source: FactSet
3. CFA Institute Research Challenge February 5, 2016
2
Business Description
Southwest (LUV) began operations in 1971 flying three Boeing 737 Aircrafts in
between Dallas, Houston, and San Antonio. Now LUV services 97 destinations
through 40 states and is considered the largest low-cost carrier in the United
States. LUV operates under the Southwest Airlines and AirTran Airways brands
and is the largest domestic US airline by number of passengers enplaned and
scheduled domestic departures, according to the Bureau of Transportation
Statistics.
Since 1971, LUV has expanded their fleet to 704 Boeing 737s and no other
models. This single aircraft type strategy contributes to the company's low-cost
business structure, allowing it to simplify scheduling routes, plane maintenance
and the training required to maintain the fleet. LUV also strays from the traditional
hub-and-spoke model of air travel, and focuses primarily on point-to-point travel.
This allows the company to keep the size of the fleet down as well as reduce time
spent on the ground. LUV also utilizes secondary airports in cities in an effort to
reduce travel delays and increase their presence in cities without directly
competing with legacy airlines, such as Delta and American Airlines. In 2001, the
company became the first airline to develop its own reservation system and now
sells a significant proportion of its seats through its own website. Through all of
these cost cutting innovations, LUV has had 43 consecutive years of profitability.
Recently, LUV purchased fellow low-cost airline AirTran Airlines for $1.4 billion in
2011. The purchase has expanded Southwest's international reach as AirTran
provides service to nine destinations in six near-international countries including
Mexico, Jamaica, The Bahamas, Aruba, Dominican Republic and Bermuda.
Despite this expansion, revenue relevant to Southwest's international operations
accounts for less than 1.0% of the company's total revenue.
Macroeconomic Outlook
Given recent data, we are more pessimistic on GDP growth than other analysts.
Thus, we believe in Real Business Cycle Theory, where prolonged periods of
growth are followed by decline due to real shocks in the economy. If the economy
were to begin a decline, the airline industry would be adversely affected, driving
sales down. In the long-term, we expect business travel to stay constant relative
to economic activity. Leisure travel, on the other hand, correlates directly with GDP
growth. If the economy begins to decline, consumers will save more of their
discretionary income, leading to lower sales for airlines. Southwest, in particular,
has little exposure to international economic activity due to their focus on the
domestic market.
Industry overview
Competition is high, and increasing
Four of the major players in the Domestic Airline Industry make up 68.8% of the
total market share as is seen in Figure 5 while the three legacy airlines stated here
make up 64% of the market share of the international airline industry in the United
States. This high degree of market concentration is due to the acquisitions of
AirTran by Southwest and the merger of Continental and United. This high level of
competition also has caused smaller airlines to make an extended effort to
differentiate their product. Because of this, the industry has low cost carriers such
as Spirit Airlines and JetBlue, and then Legacy airliners such as Delta and
American. The combination of the legacy airlines merging, and the low cost
carriers finding ways to increase market share have cause the prices of airline
tickets to remain stagnant over the past five years when factoring in inflation which
is visible in Figure 6.
Figure 5
Source: IBIS World
Figure 4
Source: IBIS World
4. CFA Institute Research Challenge February 5, 2016
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GDP and Retail Sales are main drivers for the industry
Passengers make up over 70% of the total revenue in the domestic airline industry
which is estimated to total at $157.1 billion dollars in 2014. As of now, discretionary
income is on the rise which can be see with the stable growth of GDP around 2%
a year for the past five years. On top of this, if airfare increases at a slower rate
than income growth, people will be more inclined to spend their discretionary
income on airfare. The high correlation between GDP, Retail Sales, and Industry
revenue can be seen in Appendix B.
OPEC drives the price of Oil to 15 year low
As OPEC continues to increase the supply of Oil in the market, prices have
dropped to a 15 year low. In the airline industry, purchases account for between
20 and 40% of all operating expense for the firms in the industry, but have declined
recently due to the bottoming out of the oil prices which can be seen at the bottom
of Figure 7. Being the most significant variable cost, this drop of oil to 30 dollars a
barrel means that Jet Fuel prices are the lowest they have been in almost 10 years.
While this drop in price is a positive for the airline industry short term, but these
companies could experience future losses due to an adverse locked in oil prices
due to hedging. Also, if oil prices rise again in 2016 those who are unhedged will
be at risk for a cost hike. For example, JetBlue had 17% of its 2015 fuel usage
costs hedged, while southwest had removed its hedging position in 2015, and has
recently done the same in 2016. For further reference, see Appendix N.
Industry wages continue to rise at a slower rate than revenue
Because the industry is subject to a large degree of unionized labor, there is no
expected large-scale employee cutbacks expected in the future. Wages paid out
to employees in the industry is expected to increase at an annualized rate of 1.6%
until 2020. If the unions fight for a greater increase in wages, the costs will go up
significantly more than expected, potentially stunting operating income growth.
Cyclical airline industry has stayed positive in recent years
Despite the airline industry's history of following a cyclical pattern, the airline
industry has maintained positive net income for five years in a row. This could be
due to a variety of factors, including decreasing oil prices, acquisitions to increase
size of the profitable airlines, and the lack of increase in employee wages over the
past five years. Although the industry returns have remained positive, they have
been in a trough of sales growth with the industry growing at around 4% over the
past three years as shown in Figure 8.
Technological advances in recent years help differentiate carriers
Smaller airliners now have the capability to differentiate from the giants of the
industry with technology such as on board Wi-Fi, Online third party booking,
personal entertainment devices, among others. The increase in technology in
regards to aircraft development allows an airline to differentiate their fleet. There
are companies like Delta who have 10 different aircrafts and 18 total models, while
LUV has just the B-737 in their fleet to simplify and streamline efficiency of the
travel.
Competitive Positioning
When analyzing the industry, we selected JBLU, ALK, DAL, and SAVE as our
comparable companies to reflect a balanced mix of legacy and low cost carriers
and market share holders to compare to LUV.
Southwest has seen greater stability than industry comparables
When looking at the past 20 years of sales of Southwest and the comparables,
LUV has the 2nd lowest standard deviation of the companies compared. This low
standard deviation combined with the 20 year sales average of 10.65% in
comparison with the 8.3% growth of the industry highlights the stability of
Figure 6
Source: Dept. of Transportation
Figure 7
Source: FactSet
Figure 8
Source: FactSet
5. CFA Institute Research Challenge February 5, 2016
4
Southwest as a company. This 20 year sales average was taken for the four
comparable companies as well and it was seen that Southwest has the highest of
all the companies that have data that can be found from at least the past 20 years
which can be seen in figure 8. Other Sales metrics can be seen in appendix B
Use of smaller airports decreases Southwest market competition
Although Southwest has about 16% of the U.S. airline market share, they excel in
regards to competing in areas that are not as concentrated with the legacy
airliners. When looking at data for the U.S Bureau of Transportation, you see that
while Southwest has only 14.09% market share of the 10 largest airports in the
U.S. This compared with the 52.97% market share that the Legacy airliners have
shown that although Southwest is competitive in these regions, they are not the
market leaders. On the other hand, if you look at the top 10 grossing airports for
Southwest in this last year, you see that LUV has a market share of 55.19% which
easily outweighs the 28.51% market share of all the legacy airliners combined.
This gives SW greater control of pricing in their highest grossing areas because of
their monopoly position on airports such as HOU (92.18%), DAL (90.77%), and
MDW (94.76%).
Integration of AirTran proven successful as of 2015
Southwest Airlines completed the integration of AirTran destinations and fleet at
the beginning of 2015 and has since shown signs of operational improvement.
EBITDA Margin, ROA, ROE, and the RASM/CASM spread have continued to
improve since the acquisition as seen below. This integration has also opened up
the international market to Southwest and give Southwest more opportunity for
growth. During this time, Southwest has experienced a higher five year average
sales growth than other competitors.
Using one type of plane allows for lower maintenance costs than
competitors
Southwest’s operates 704 Boeing 737 aircrafts and does not differentiate outside
of this model. The single aircraft strategy allows for simplification of scheduling,
maintenance, and training for operating the aircraft's. When looking at the
comparable companies and their maintenance costs only Alaska Airlines who
follows the same model just at a smaller scale, has a lower maintenance cost than
LUV. These costs could decline further as they continue to retire the older fleet
and bring in the 737-800 model.
In Appendix B there is a Soft Factors analysis of LUV and competitors that looks
further into the competitive positioning of Southwest vs. the competitors.
Financial Statement Analysis
Pro Forma Financial Statements
In order to gauge Southwest’s future performance on an individual account basis,
we forecasted financial statements for FY 2016 through FY 2019. All financial
statement item forecasts are subject to our own assumptions and actual future
performance may differ. Even with the large amount of uncertainty regarding
allocation of funds to certain line items, especially those that involve derivative
hedging, we have obtained a target price based on corresponding Free Cash Flow
Figure 9
Source: Dept. of Transportation
Figure 10
Source: Dept. of Transportation
Column1 EBITDA Margin ROA ROE RASM/CASM spread
2011 11 1.1 2.7 -0.19
2012 9.7 2.3 6.1 -0.29
2013 12.3 4 10.6 0.23
2014 17.6 5.8 16.2 0.98
2015 28 10 30.9 1.84
6. CFA Institute Research Challenge February 5, 2016
5
to the Firm that shows upside potential relative to the current trading price of
$35.69. This price incorporates pessimistic sales growth as well as a conservative
discount rate.
Sales
Sales were increased on a weighted average estimate from various databases to
an increase of 5%. This growth rate reflects our pessimistic perspective on
revenues due to stagnant short-term demand, economic uncertainty in the short
term, and conservative forward looking views. For every 1% increase or decrease
in the sales growth rate, net income increases or decreases in the same direction.
Share repurchases
Allocated the 500 million share repurchase plan in 2016, as given by management.
The assumption was made that the board would authorize management to buy
back more shares in the future, and a constant 250 million shares was assumed
for all three years.
Guidance
Accounts like current maturities of long-term debt, leases, and share repurchasing
were all forecasted in line with the guidance provided either in the annual report or
quarterly earnings calls.
Ratio Analysis
We analyzed historical and forecasted performance for LUV based on industry and
competitor ratios and statements to understand how well the company is managed
relative to its peers.
Debt management: Southwest had the highest TIE ratio in the industry in 2015.
Furthermore, EBIT is projected to increase steadily and sufficiently cover projected
interest payments that will come due as guided in the 2015 10-K. Such debt
management capability is crucial given the leases and debt obligations the
company has taken on to fund its fleet modernization and equipment purchases.
Liquidity: LUV has had a very low current ratio in the past and in comparison to
its competitors, indicating that it has an insufficient quantity of assets to cover its
current liabilities. This trend is not projected to change through 2019 as the
company maintains its asset management strategy.
Profitability: As of 2015, LUV had the second highest ROE in the industry at
30.9%, a strong position that is expected to wane in future years to approximately
the industry average of 27.5% due to economic stagnation. ROA is even with the
industry average and significantly behind ROA top-performer SAVE, though SAVE
is projected to lose this advantage as its cost structure matures. We projected LUV
ROA to remain approximately the same, given their historically adequate asset
management. Significant increases in EPS and slight increases in ROIC will
demonstrate continued profitability and shareholder returns via stock buybacks,
increasing revenues, and cost synergies from fleet modernization.
Margins: LUV has a net margin that is approximately the same as the industry
average. Net margin will stay the same in accordance with management guidance
given the combination of dependable cost management and a lagging economy.
Cost Structure Analysis
Profit
Profit in the industry is measured as earnings before interest and taxes (EBIT).
Profitability is highly volatile. Over the past five years, profit margins for this
industry have increased considerably from 4.0% of revenue in 2010 to an
estimated 10.7% in 2015. A 40.7% decrease in the price of crude oil in 2015 is
largely responsible for the increase in earnings across the industry.
Nevertheless, the drop in the price of fuel has impacted yield (which determines
fare prices) reducing the average fares by approx. 6.8%. In this lower oil prices
environment airlines are determined to reduce fare prices in order to gain market
share.
Figure 11
Source: CFA Conference
7. CFA Institute Research Challenge February 5, 2016
6
Operating costs
The point-to-point strategy has allowed low cost carriers to maintain lower CASM
(cost-per available seat mile, see Appendix N 1) than traditional Legacy Airlines.
Operating under this strategy, Southwest has been able to gain cost advantage
over some of its larger competitors.
LUV is the most fuel efficient airline in the industry with fuel expense of 18.24% of
sales while the industry average is 21.64%. Based on our estimated pro formas,
each 1% change in fuel and oil expense changes net income in the opposite
direction. The company will keep benefiting from this cost advantage in 2016
because they are accelerating plans to retire older fleet (Classic 737).
Simultaneously, the company will add newer and more fuel efficient planes
therefore improving CASM because there are going to be more seats on more fuel
efficient planes. The transition from the classic fleet to the Max fleet will increase
fuel efficiency by approx. 18%. Accelerating plans for new fleet is going to be
especially important if jet fuel prices were to increase significantly. It is important
to mention that the company will continue to benefit from lower fuel prices, and
currently estimates this year’s fuel costs to be more than $500 million lower than
2015, based on market prices and their current fuel hedge as of January 15, 2016.
However, other ultra-low cost carriers such as JetBlue, Spirit Airlines and Alaska
Airlines which also operate a point-to-point network have lower CASM than LUV.
There are two important reasons why these smaller competitors operate with lower
CASM. The first one is Southwest is the highest paying airline with approx. 37% of
sales destined to employee compensation because of the seniority of their
employees. The second reason is that smaller airlines have newer fleets and
therefore incur in less charges in the maintenance of planes. The Trend graphs of
RASM and CASM for the industry comparables can be seen in appendix
Valuation
Discounted Cash Flow Analysis
Discounted Cash Flow (DCF) analysis was applied to arrive at a present valuation
for the future free cash flows of LUV. This method assumes that the company will
have a high growth rate for a certain number of years, followed by a period of stable
growth.
This model yielded an intrinsic value of $43.31 relative to the 2/5/2016 closing price
of $35.69, representing upside potential of 21.3% based on the base case (App
E). The CAPM model was used to calculate a required rate of return, which was
then used to discount the cash flows rendered from team pro forma statements for
the years 2016 and 2017. As a component of CAPM, the 10-year USD treasury
rate of 2.32% as of 2/7/2016 was used for the risk-free rate. The team estimated
a beta of 1.25 based on the assumption that the stock is 25% more risky than the
market. Scenario analysis with FactSet’s 52-week adjusted beta of 1 produced a
higher implied stock price and upside (App E). The chosen base case calculates
a cost of equity of 8.57%. Within the DCF model, a super growth rate of 7% is
expected for 7 years as LUV is a mature company with fairly stable revenues but
is also facing economic headwinds. This scenario yielded a Free Cash Flow to the
Firm (FCFF) estimate of $1358M for 2016 and $1485M for 2017, leading to a final
implied stock price of $41.43.
Dividend Discount Model
We applied a Dividend Discount model to LUV to gauge its intrinsic value relative
to its current market price and calculate a target value. However the assumed cost
of equity is greater than the dividend growth rate, producing an impossible negative
stock price and rendering the model invalid.
Figure 12
Source: FactSet
Figure 13
Source: Team Estimates
8. CFA Institute Research Challenge February 5, 2016
7
Multiples Valuation
We estimated bear and bull scenarios for valuation multiples based on LUV’s
current trading position and our economic forecast.
P/E NTM: We selected a bull case multiple of 14.5x versus a current multiple of
8.3x based on historical trends and multiplied it by FactSet’s estimated FY 2016
multiple of $4.29 for an intrinsic value of $62.21. This was discounted to the present
value using the calculated cost of equity of 8.57% for a discounted intrinsic value
of $57.29.
P/S: We selected a bull case multiple of 1.69x versus a current multiple of 1.2x
based on historical trends and multiplied it by the FY 2015 sales per share of
$30.50 for an intrinsic value of $51.55.
P/CF: We selected a bull case multiple of 10.5x versus a current multiple of 7.23x
based on historical trends and multiplied it by the FY 2015 cash flow per share of
$4.85 for an intrinsic value of $50.93.
P/E LTM: We selected a bull case multiple of 23.67x versus a current multiple of
10.91x based on historical trends and multiplied it by the FY 2015 EPS of $3.27
for an intrinsic value of $77.40.
We assigned weights to each calculated intrinsic value with particular emphasis
on P/E NTM because its trend most closely represents our perception of the
company’s position in the earnings cycle. We arrived at a weighted average price
target of $59.21. We selected this as the final price target given the risks
surrounding our pro forma financial statements and subsequent DCF analysis.
Risk Factors
Highly Unionized workforce
With nearly 80% of Southwest Airline’s labor force unionized, labor costs consume
a large portion of their operational expenses. Dealing with labor unions can be
extremely costly, as well as time consuming. The inability of reaching agreements
with their employees can pose significant threats to the company’s operations such
as strikes or demands for wage increases. Salaries, wages and benefits accounted
for approx. 32% of operational expenses in 2015, and are expected to keep rising.
With the ongoing labor disputes with the unions for LUV happening last year and
this year, there could be pay raises of up to 20% in some workforces.
Fuel Costs
One of the main drivers of profit in the industry is fuel costs. Although the industry
is experiencing higher profit margins from the current low energy cost environment,
the cost of fuel continues to be very volatile and subject to market conditions.
Taking into account the unhedged position of Southwest for 2016, for every cent
jet fuel rises, it could have an effect of upwards to 23 million dollars on costs. This
puts Southwest and other airlines with the same unhedged position in an adverse
position if OPEC decides to decrease the supply of crude oil they are pumping into
the market. Fewer resources, higher prices.
Probability of Economic Recession
Air travel demand is very unpredictable and particularly sensitive to negative
economic conditions because it is a luxury good. Not everyone travels by air for
long trips and flights for leisure are paid for with discretionary income. If GDP
decreases, there is less discretionary income, therefore less leisure travel.
Business travelers also have a cheaper substitute due to improved technology in
regards to conference calls.
International Expansion
By initiating international operations in 2014, the company is operating in a market
where it lacks the expertise and may be deviating from its core operations.
Operating in International markets require to compliance with regulation in these
countries which in turn will rise operating costs. Also, the new added risk of
exchange rates gets thrown into the equation with international expansion. Finally,
Figure 14
Source: Team Estimates
9. CFA Institute Research Challenge February 5, 2016
8
the company lacks brand recognition in these markets so revenues abroad may
take longer than expected to grow.
Security Concerns
The industry as a whole has been subject to terrorist threats and attacks. Even
though, the risk is remote, in the event of such event a revenue will drop sharply
due to the decrease in demand for air travel. Additionally, costs will rise
significantly due to increased security measures, higher costs of insurance and
there will be less or no access to capital markets for debt financing.
Pending AirTran Litigation
AirTran is currently subject to pending antitrust litigation, and if judgment were to
be rendered against AirTran in the litigation, such judgment could adversely affect
the Company’s operating results.
Financial Modeling
Our financial models are based on assumptions from third party financial
databases and team estimates of best practices and may be subject to human
error, economic uncertainty, and other external factors that may cause them to
differ from realized financial results.
10. CFA Institute Research Challenge February 5, 2016
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Table of Contents
A) Company Statements (past 5 years)/pro formas (2015-2020)
a) Income Statement
b) Balance Sheet
c) Statement of Cash Flows
d) Ratios
B) Sales/Industry Analysis
C) Cost of Capital Calculation
D) FCFF/FCFE Calculation
E) DCF Model
F) LUV and Industry Ratios
G) Event History on Price History
H) Unit Cost Comparison
I) 50 vs 200-day MAV
J)Multiples Valuation
K) Multiples Price Impact Graphs
a) P/E NTM
b) P/E LTM
c) P/S
d) P/CF
e) P/B
L)Selected Competitors Price History
M) Airline Glossary
N) Competitor PRASM vs CASM graph comparison
12. CFA Institute Research Challenge February 5, 2016
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Appendix A.b Balance Sheet
Southwest Airlines Co. Balance
Sheet ($M) 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E
Total assets 15463 18068 18596 19345 20200 21312 22366 23397 24419 25591
Total current assets 4279 4345 4227 4456 4404 4024 4262 4436 4639 4871
Cash and cash equivalents 1261 829 1113 1355 1282 1583 1699 1745 1825 1916
Short-term investments 2277 2315 1857 1797 1706 1468 1541 1618 1692 1777
Accounts and other receivables 195 299 332 419 365 474 498 523 546 574
Inventories of parts and
supplies, at cost 243 401 469 467 342 311 327 343 358 376
Fuel derivative contracts -- -- -- -- -- -- -- -- -- --
Prepaid expenses and other
current assets 89 238 210 250 232 188 197 207 217 228
Net property and equipment 10578 12127 12766 13389 14292 15601 16381 17200 17984 18883
Total property and equipment,
at cost 16343 18421 19497 20820 22513 24685 25919 27215 28455 29878
Flight equipment 13991 15542 16367 16937 18473 19462 20435 21457 22434 23556
Ground property and
equipment 2122 2423 2383 2666 2853 3219 3380 3549 3711 3896
Deposits on flight equipment
purchase contracts 230 456 416 764 566 1089 1143 1201 1255 1318
Assets constructed for others -- -- 331 453 621 915 961 1009 1055 1107
Allowance for depreciation and
amortization -5765 -6294 -6731 -7431 -8221 -9084 -9538 -10015 -10471 -10995
Goodwill 0 970 970 970 970 970 970 970 970 970
Other assets 606 626 633 530 534 717 753 790 827 868
Total liabilities and stockholders'
equity 15463 18068 18596 19345 20200 21312 22366 23397 24419 25591
Total current liabilities 3305 4533 4650 5676 5923 7406 7750 8165 7845 8684
Accounts payable 739 1057 1107 1247 1203 1188 1247 1310 1369 1438
Accrued liabilities 863 996 1102 1229 1565 2591 2721 2857 2987 3136
Air traffic liability 1198 1836 2170 2571 2897 2990 3140 3296 3447 3619
Current maturities of long-
term debt 505 644 271 629 258 637 643 321 42 491
Long-term debt less current
maturities 2875 3107 2883 2191 2434 2541 2459 2138 2096 1605
Deferred income taxes 2493 2566 2884 2934 2782 2490 2490 2490 2490 2490
Deferred gains from sale and
leaseback of aircraft 88 75 -- -- -- -- -- -- -- --
Construction obligation -- -- 331 437 554 757 795 795 873 1086
Other noncurrent liabilities 465 910 856 771 1255 760 798 798 876 920
0
Total stockholders' equity 6237 6877 6992 7336 6775 7358 8073 9011 10239 10806
Common stock 808 808 808 808 808 808 808 808 808 808
Capital in excess of par value 1183 1222 1210 1231 1315 1374 1374 1374 1374 1374
Retained earnings 5399 5395 5768 6431 7416 9409 10661 11849 13290 14107
Accumulated other
comprehensive income / loss -262 -224 -119 -3 -738 -1051 -1088 -1088 -1051 -1051
Treasury stock, at cost -891 -324 -675 -1131 -2026 -3182 -3682 -3932 -4182 -4432
13. CFA Institute Research Challenge February 5, 2016
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Line Item Assumption
Total assets
Based on historical 2015 allocation, in line with
increase in sales
Total current assets
We recognize that current assets and current
liabilities accounts likely higher than will be
realized due to losses on derivatives likely to be
realized (affecting prepaid, other, and other non-
current liabilities, accrued liabilities)
Cash and cash equivalents
Assumed percentage of assets based on 2015
quarterly allocation
Fuel derivative contracts Held constant due to uncertainty
Assets constructed for others
Balance plus 295M cost of Fort Lauderdale
expansion (Broken down evenly over 8 quarters-
construction started 2015, expected to end 2017.
Overestimating because some of the cost in 2015
(Q4) plus 526-148 already incurred (to 2018), held
constant in 2019 due to lack of guidance.
Allowance for depreciation and amortization
Goodwill Assumed constant based on historical stability
Current maturities of long-term debt Guided in 10-K
Long-term debt less current maturities Guided in 10-K
Deferred income taxes
Includes unpredictable items such as hedging
expenses. Plug from 2015 due to high historical
fluctuation (computed average of 4 quarters of
2015).
Deferred gains from sale and leaseback of
aircraft No leasebacks planned
Construction obligation
36.6% increase seen in 2015 (based on 10-K), at a
growing percentage. Conservatively high but not
accounting for future projects due to uncertainty
Accumulated other comprehensive income /
loss
Held constant due to uncertain outlook on hedging-
related gains and losses
Treasury stock, at cost
Repurchased $500M in 2016, $250M thereafter
assuming reauthorization from Board
14. CFA Institute Research Challenge February 5, 2016
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Appendix A.c. Statement of Cash Flows
Southwest Airlines Co. Statement of Cash
Flows ($M)
2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E
Net cash provided by / used in operating
activities 1561 1356 2064 2477 2902 3238 3128 3348 3474 3810
Net income / loss 459 178 421 754 1136 2181 2271 2485 2507 2742
Adjustments to reconcile net income / loss to
cash provided by / used in operating activities 886 928 906 912 1718 1019 1094 1147 1203 1262
Depreciation and amortization 628 715 844 867 938 1015 1066 1119 1175 1234
Unrealized / realized gain / loss on fuel
derivative instruments 139 90 -189 -5 279 113 28 28 28 28
Deferred income taxes 133 123 251 50 501 -109 -- -- -- --
Amortization of deferred gains on sale and
leaseback of aircraft -14 -- -- -- -- -- -- -- -- --
Share-based compensation expense -- -- -- -- -- -- -- -- -- --
Excess tax benefits / obligations from share-
based compensation arrangements -- -- -- -- -- -- -- -- -- --
Changes in certain assets and liabilities 216 250 737 811 48 38 -237 -285 -236 -195
Accounts and other receivables -26 -26 -33 -17 54 -88 -24 -25 -24 -27
Other assets -8 -196 -104 -46 142 103 -36 -38 -36 -41
Accounts payable and accrued liabilities 193 253 186 343 36 961 189 198 190 218
Air traffic liability 153 262 334 400 326 94 150 95 150 172
Cash collateral received from / provided to
derivative counterparties 265 -195 233 57 -233 -570 -285 -285 -285 -285
Other, net -361 152 121 74 -277 -462 -231 -231 -231 -231
Net cash used in / provided by investing
activities -1265 -1022 -833 -1384 -1727 -1913 -20 -712 -515 -307
Payment to acquire AirTran, net of AirTran
cash on hand 0 -35 -- -- -- -- -- -- -- --
Capital expenditures -493 -968 -1348 -1447 -1828 -2143 -2306 -2308 -2241 -2198
Capital expenditures excluding assets
constructed for others -- -- -1348 -1433 -1748 -2041 -2000 -2000 -2000 -2000
Assets constructed for others -- -- 0 -14 -80 -102 -306 -308 -241 -198
Purchases of short-term investments -5624 -5362 -2481 -3135 -3080 -1986 -1589 -1366 -1175 -1011
Proceeds from sales of short-term and other
investments 4852 5343 2996 3198 3181 2216 3875 2962 2901 2901
Proceeds from sales of short-term and other
investments excluding other, net -- -- 2996 3198 3185 2223 3875 2962 2901 2901
Other, net -- -- -- -- -4 -7 -- -- -- --
Payment for assets of ATA Airlines, Inc. -- -- -- -- -- -- -- -- -- --
Debtor in possession loan to ATA Airlines, Inc. -- -- -- -- -- -- -- -- -- --
Net cash used in / provided by financing
activities -149 -766 -947 -851 -1248 -1024 -1409 -890 -1134 -1586
Proceeds from issuance of long-term debt -- -- 0 0 300 500 -82 321 -42 -491
Proceeds from credit line borrowing -- -- -- -- -- -- -- -- -- --
Proceeds from revolving credit facility -- -- -- -- -- -- -- -- -- --
Proceeds from sale leaseback transactions -- -- -- -- -- -- -- -- -- --
Proceeds from employee stock plans 55 20 27 96 110 46 13 13 13 13
Proceeds from termination of interest rate
derivative instruments -- 76 38 -- -- 24 -- -- -- --
Reimbursement for assets constructed for
others -- -- -- -- 27 12 3 3 3 3
Payments of long-term debt and capital lease
obligations -155 -540 -578 -313 -561 -213 -603 -591 -519 -452
Payments of convertible debt 0 -81 -- -- -- -- -- -100 -- --
Payment of revolving credit facility obligations -- -- -- -- -- -- -- -- -- --
Payment of credit line borrowing obligations -44 -- -- -- -- -- -- -- -- --
Payments of cash dividends -13 -14 -22 -71 -139 -180 -217 -263 -315 -386
Repurchase of common stock 0 -225 -400 -540 -955 -1180 -500 -250 -250 -250
Other, net 8 -2 -12 -23 -30 -33 -23 -23 -23 -23
Excess tax benefits / obligation from share-
based compensation arrangements -- -- -- -- -- -- -- -- -- --
Repayment of construction obligation -- -- -- -5 -11 -10 -- -- -- --
Other, net excluding excess tax benefits /
obligation from share-based compensation
arrangements and repayment of construction
obligation -- -2 -12 -18 -19 -23 -23 -23 -23 -23
Net change in cash and cash equivalents 147 -432 284 242 -73 301 116 46 80 91
Cash and cash equivalents at beginning of
period 1114 1261 829 1113 1355 1282 1583 1699 1745 1825
Cash and cash equivalents at end of period 1261 829 1113 1355 1282 1583 1699 1745 1825 1916
Cash payments for -- -- -- -- -- -- -- -- -- --
Interest, net of amount capitalized -135 -185 153 -133 -128 -- -94 -26 -23 -24
Income taxes -274 -13 100 -346 -155 -- -1409 -265 -367 -469
Noncash transactions -- -- -- -- -- -- -961 -1010 -1036 -1046
Noncash rights to airport gates acquired
through reduction in debtor in possession loan
to ATA Airlines, Inc. -- -- -- -- -- -- -- -- -- --
Flight equipment under capital leases -- -- -- -- -- -- -- -- -- --
Assets constructed for others -- 116 129 105 88 -- -961 -1010 -1036 -1046
Fair value of equity consideration given to
acquire AirTran -- 523 -- -- -- -- -- -- -- --
Fair value of common stock issued for
conversion of debt -- 78 -- -- -- -- -- -- -- --
Dividend Scenarios
Year 2015 2016 2017 2018 2019
Growth rate 0.2 0.2 0.2 0.2
Dividend 0.285 0.342 0.4104 0.49248 0.590976
Shares outstanding (non-diluted) 647.600 647.600 647.600 647.600 647.600
Total CF 184.566 -221.4792 -265.77504 -318.930048 -382.7160576
15. CFA Institute Research Challenge February 5, 2016
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Appendix A.d LUV Ratios
Line Item Assumption
Unrealized / realized gain / loss on fuel derivative
instruments Held constant due to uncertainty
Capital expenditures excluding assets constructed
for others $2B utilized in 2015, assumed same over near future
Purchases of short-term investments 5year average decrease by 14% Yoy, divided among quarters
Proceeds from sales of short-term and other
investments excluding other, net Applied 4year historical average
Proceeds from issuance of long-term debt Guided in 10-K
Proceeds from sale leaseback transactions Assumed none since no leasebacks planned
Proceeds from employee stock plans 5year historical average in $
Reimbursement for assets constructed for others We acknowledge an undetermined schedule of reimbursement for various projects underway. No guidance given for forecasting purposes.
Payments of long-term debt and capital lease
obligations See lease schedule appendix
Payments of cash dividends Increased by 20% for all forecasted years based on projected decrease from 25% change from 2014-2015that has been decreasing over time
Excess tax benefits / obligation from share-based
compensation arrangements Assumed none based on historical trend
Ratio 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E Trend 5 Yr AVG
Operating Margin 3.30 1.06 -5.92 0.77 8.24 6.41 4.72 7.36 12.57 22.87 20.52 20.96 20.52 20.96 10.78
Net Margin 5.49 6.54 1.61 0.96 3.79 1.14 2.46 4.28 6.13 11.02 10.91 11.37 10.93 11.38 5.01
Return on Assets 3.61 4.27 1.15 0.69 3.09 1.06 2.30 3.99 5.77 10.53 10.16 10.62 10.27 10.72 4.73
Return on Equity 7.60 9.63 2.99 1.90 7.84 2.71 6.07 10.57 16.16 30.92 28.14 27.58 24.48 25.38 13.29
Return on Invested Capital 6.20 7.59 2.04 1.15 5.13 1.86 4.24 7.80 12.17 22.87 11.12 11.75 11.60 12.22 9.79
Dividend Yield (%) 0.12 0.15 0.21 0.16 0.14 0.21 0.34 0.69 0.52 0.66 0.29 0.30 0.32 0.36 0.48
EPS (recurring) 0.20 0.07 -0.75 0.17 0.72 0.50 0.48 1.20 2.28 4.26 3.47 3.83 3.95 4.32 1.74
Current Ratio 0.90 0.92 1.03 1.25 1.29 0.96 0.91 0.79 0.74 0.54 0.55 0.54 0.59 0.56 0.79
EBIT/Interest Expense (Int.
Coverage) 2.34 0.88 -5.02 0.43 5.97 5.17 5.48 8.19 16.83 44.88 35.58 38.16 39.22 42.08 16.11
Projected ASMGrowth (LUV): 5.00%
Year ASM
2016 147526
2017 154902
2018 162647
2019 170780
Year Shares Outstanding
2016 655
2017 649.4
2018 635.4
2019 635.4
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Map of the Impact of Industry Soft Factors to Sales via Demand (Volume) and Price
Sector = Transportation
Industry = Airlines
Life Cyle = Mature
Highly Correlated Economic Variables (list relevant) Pos/Neg Significance Outlook Reasoning
Retail Sales + medium neutral/positive
Discretionary income is where the majority of revenue earned comes from.
Therefore the hike in Retail Sales shows an increase in Airline Revenue
CPI + low neutral/positive
As inflation has increased in recent years, so have sales in the airline industry.
This is also affected by the hike in Retail Sales
Oil + medium neutral/positive
Oil price have fallen over the past three years. And since Oil is the main cost of
the Airline, this is allowing for better deals and increased flights
GDP + High Positive Cyclical indsutry forces it do depend on domesitc growth
Correlation with employment - driscretionary imployment check new regression pg
Pos/Neg Degree +/- Probable Impacts
Positive = + Low = 1 or 2 Low = 1 or 2 Demand
Negative = - Average = 3 Avg = 3 Costs
High = 4 or 5 High = 4 or 5 Price
External Factors Pos/Neg Degree+/- Probable Impacts Notes
Technology
Aircraft fuel efficiency changes + 4 3
Costs/Price - The fuel efficiency per available ton-mile has improved over time
because of increased aircraft size, while also making aircrafts more aerodynamik
and lighter
IBIS World Domestic Airlines
Aircraft capacity + 5 2
Cost/Price/Demand - The new A380 by Airbus can fly 853 passengers and is
allowed to fly over 10000 nonstop. This allows for the capability for direct
flights to almost anywhere in the world, which allows for convenience increases
for passengers while making the route more efficient for the airline
IBIS World Domestic Airlines
WiFi - 2 3
Cost - WiFi service is a positive for passengers, but it is a negative cost for the
airline
IBIS World Domestic Airlines
Online booking/payment/checkin + 4 5
Cost/Demand - An increase of simplicity and accessibility allows for the
increase of tickets sold while also eliminating paper costs and administration
labor costs. This is even more apparent with the increase in smart phones and
the ability to download tickets to your phone
IBIS World Domestic Airlines
Government
U.S. Environmental Protection Agnecy = 3 5 Costs, Make sure that airlines are up to date with emission requirements IBIS World Domestic Airlines
Aviation and Transportation Security Act = 3 5 Costs. Responsible for TSA, IBIS World Domestic Airlines
Federal Aviation Administration + 1 1
Costs. Assist airlines in solving congestion problems caused by air traffic control
systems. Paid companies affected adversely by 9/11 disruption of markets. Also
enforces noise standards for aircrafts set from the Airport Noise and Capacity
Act of 1990
IBIS World Domestic Airlines
Social
IBIS World Domestic Airlines
IBIS World Domestic Airlines
Demographic
Business Travel + 3 3
Price - Much less responsive to price change. Demand for business travel only
increases or decreases when the economy is doing well, so business is doing
well.
IBIS World Domestic Airlines
Leisure Travel - 2 2
Demand/Price - When Factors such as disposable income grow, more
consumers will spend more money on interstate travel. Cheaper prices tend to
attract more passengers.
IBIS World Domestic Airlines
Foreign
Highly globalized IBIS World Domestic Airlines
Oil Markets
Because of volatility of the market for oil globally, the domestic airline market is
affected IBIS World Domestic Airlines
Pricing Factors
Product Segmentation (Generic v. Brand Industry)
All offer the same service
Degree of Industry Concentration (Monopolistic)
Highly concentrated
Ease of Entry (Monopolistic)
Huge barriers
Limited Input Suppliers/Materials
Very limited
Industry Sales Forecasts
Source 2016 2017 2018 2019
IBISWorld Forecast
% growth 4.20% 4.80% 4.40% 4.80%
FactSet Forecast
% growth 0.79% 4.30% 5.35% 5.42%
First Research Forecast
% growth 5% 4% 4% 5%
Based on Correlations and Soft Factors - Industry Sales Forecast 2016 2017 2018 2019
Amount
% growth 4.20% 4.37% 4.58% 5.07%
Legend
Legend
24. CFA Institute Research Challenge February 5, 2016
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Appendix F: LUV vs Industry Ratios
Company Ticker LUV DAL JBLU ALK SAVE
Competitors
Average
Current Ratio 0.54 0.68 0.73 0.93 1.97 1.08
Gross Margin 34.2% 28.1% 22.4% 33.2% 27.4% 27.8%
Net margin 11.0% 7.0% 9.2% 14.6% 14.3% 11.2%
Net margin NTM 13.3% 12.9% 13.0% 16.2% 12.7% 13.7%
ROA 10.5% 5.4% 7.0% 12.6% 16.2% 10.3%
ROA NTM 12.4% 9.0% 10.1% 12.3% 10.0% 10.3%
ROE 30.9% 25.0% 21.3% 35.0% 28.5% 27.5%
ROE NTM 28.0% 34.0% 21.1% 30.5% 20.0% 26.4%
ROIC 22.9% 14.6% 11.3% 27.3% 23.0% 19.1%
Net Income (M) 2,185 2,834 575 805 299 1,128
Net Income NTM (M) 2,780 5,249 913 953 304 1,855
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Appendix G: Event History on Price History
Note: Late 2009 was failed acquisition of Frontier Airlines
Note: late 2010 was acquisition of AirTran Airlines
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Appendix I: LUV Weekly 200-day MAV vs 50-Day MAV
This demonstrates a hold signal as the current price has been intertwining with the moving averages and is indicating
resistance in not breaking above the 52-week high of $49.41 in 2015. This is likely to change in the near term given fleet
modernization benefits and growth into untapped domestic and international markets.
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Appendix L: Competitor Price History
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Appendix M: Airline Glossary
Aircraft Utilization – The hours and minutes in a day an aircraft is used.
ASM (Available Seat Mile) – One seat (empty or full) flown one mile. Often referred to as the airlines industry’s measures
of capacity.
Average Length of Haul – The average distance in miles a paying passenger is flown.
Average Passenger Fare – The average amount of passenger revenue per Revenue Passenger Carried.
Average Stage Length – The average distance in miles the aircraft is flown.
CASM (Operating Expenses (Cost) per Available Seat Mile) – The average cost of flying an aircraft seat (empty or
full) one mile. Often referred to as a “unit cost” measurement. Calculated as Total Operating Expenses/Total Available
Seat Miles.
DOT (Department of Transportation) – Established by an act of Congress on October 15, 1966, the DOT consists of
the Office of the Secretary and eleven individual operating administrations. Leadership of the DOT is provided by the
Secretary of Transportation, who is the principal adviser to the President in all matters relating to federal transportation
programs.
Enplaned Passenger – One passenger, originating or connecting, boarded on an aircraft.
Load Factor – The percentage of a plane filled with paying passengers. Calculated as Revenue Passenger
Miles/Available Seat Miles.
Passenger Yield (Passenger Revenue Yield per Revenue Passenger Mile) – The average amount of revenue
received per paying passenger flown one mile. Calculated as Passenger Revenues/Revenue Passenger Miles.
PRASM (Passenger Revenue per Available Seat Mile) – Passenger Revenue per seat (empty or full) flown one mile.
Often referred to as a “passenger unit revenue” measurement. Calculated as Passenger Revenues/Available Seat Miles.
RASM (Revenue per Available Seat Mile) – Total Operating Revenue per seat (empty or full) flown one mile. Often
referred to as a “unit revenue” measurement. Calculated as Total Operating Revenues/Available Seat Miles.
Revenue Passengers Carried – The number of Origination and Destination (O&D) paying passengers. (O&D – a
measure of the point of origination of a passenger to the final destination).
RPM (Revenue Passenger Mile) – One paying passenger flown one mile. Often referred to as the airline industry’s
measure of “traffic”.
Trips Flown – Number of one-way nonstop flights by all aircraft.
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Appendix N: Competitor PRASM vs. CASM Graph Comparison
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References
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CDIQFjAA&url=http
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i=Airlines
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file:///C:/Users/athiesse/Downloads/FINAL%202015%20PROXY%20AND%202014%20ANNUAL%2
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http://www.flydenver.com/about/financials/passenger_traffic
http://fly2houston.com/about-traffic-updates
FactSet LUV, JBLU, ALK, SAVE, DAL Company, Economic, and Airline Industry Reports and Charting
Southwest Airlines - Investor Relations, Earnings Calls 2015 Q1, Q2, Q3, Q4
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Disclosures:
Ownership and material conflicts of interest:
The author(s), or a member of their household, of this report does not hold a financial interest in the
securities of this company.
The author(s), or a member of their household, of this report does not know of the existence of any
conflicts of interest that might bias the content or publication of this report.
Receipt of compensation: Compensation of the author(s) of this report is not based on investment
banking revenue.
Position as a officer or director: The author(s), or a member of their household, does not serve as an
officer, director or advisory board member of the subject company.
Market making: The author(s) does not act as a market maker in the subject company’s securities.
Disclaimer: The information set forth herein has been obtained or derived from sources generally
available to the public and believed by the author(s) to be reliable, but the author(s) does not make any
representation or warranty, express or implied, as to its accuracy or completeness. The information is not
intended to be used as the basis of any investment decisions by any person or entity. This information
does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any
security. This report should not be considered to be a recommendation by any individual affiliated with
CFA Societies of Texas, Louisiana, and Oklahoma CFA Institute or the CFA Institute Research Challenge
with regard to this company’s stock.