IBA Insider: 777X Certification, Risks for APAC Airlines and Regional Cargo Sector

Um, we've got, as I say, Xav's talking about Asian Airlines, the recent results.

We've got Johnno giving an update on the, uh, regional cargo market, and also Dennis, uh, Brasfield has discussed the 777 certification from an asset manager's, uh, perspective, looking at that side.

But Johnno himself is an expert, so I'll be quizzing him as well.

Um, just before we get into that, talking through some of the stories that have gone in, the minor stories that have gone in the past couple of weeks.

Um, from my side, the things which interested me, Southwest talking about actually holding up the fares, uh, after jet, uh, jet fuel, uh, prices fall.

I was recently in New York talking about the effect of, uh, the fuel price hikes and how that's trickling down into EBIT.

Um, there is obviously, when one models it, you've got to consider how much the pass-through cost goes through, and interestingly, Robert Isom, uh, seemed to think that actually they were having a lot of success passing through that cost and perhaps they could hold it, and cited the K demand curve.

For those who aren't that familiar with it, it is talking about the divergence in dim- demand structures, i.e., the wealthy seem to be able to spend more even though the less well off are pulling back their demand.

That kind of explains the direction they've gone with ancillary unbu- uh, unbundling.

Uh, also in the US, um, United dismissed the talk of a JetBlue merger.

Um, [laughs] Scott Kirby actually went as far as describing it as idiotic, um, saying the root of economics weren't there.

I was actually, funny enough, obviously I don't run their head on this side of zero say, but I thought it was quite an interesting concept that people were talking about it, because typically we think of the US as more mature, uh, their market than the European market.

Um, but Europe's explored having a dual product for a long time.

Most of the big, the big three, in fact, all have, uh, a dual product in terms of having low-cost carriers and, uh, full service carriers under the same ownership structure, and I thought perhaps that could be a direction.

Now, obviously, there's also the big upside with Spirit's exit.

Uh, JetBlue could be on the upside in terms of their growth and their ability to increase fares, but perhaps, um, United themselves think they'll be stealing that market share.

So that's, uh ... as I say, they're not interested.

Um, also the really big one in Europe, our side, which the last story I was looking at, um, was, uh, Castlelake talking about investing or taking over, uh, by some news outlets, uh, EasyJet.

Um, now they already have two to three percent, uh, market, um, uh, ownership of the company through shares.

Um, and it's interesting actually when you look at scale and the potential equity value.

Now, obviously equity is super volatile.

Um, but Ryanair's market cap's around five times that of EasyJet with perhaps twice the fleet size, so whether one believes there can be the upside there.

Now, it should be said that Ryanair's trailing 12 months EBIT was around fifteen percent versus five percent for Easy, and also Ryanair has very ... well, it was a news story that apparently they've completely eliminated their debt, so their capital structure is a lot more healthy.

Um, but you can turn that on its head that perhaps with EasyJet, um, because they do have debt, typically the advantage of a takeover e- when you've got one of these big, uh, investment firms, is that they can often secure better, better financing rates, um, especially where interest rates, they might be ... they've been down for a while versus perhaps some of the debt they might have had previously.

So I thought, again, that's an a- that's an interesting discussion point, whether it actually goes anywhere, but quite often these people make these announcements to test the waters to see what the market will do.