Airbus Fleet Expansion And Increased Greek Tourism Will Strengthen Future Operations

Key Takeaways

• Strong travel demand, especially in winter, and fleet expansion investments are expected to boost revenue and operational efficiency for Aegean Airlines.
  
• Strategic investments in Volotea and a third-party center may enhance market position and provide new revenue streams.
  
• Geopolitical tensions, engine issues, and competition may challenge revenue growth while inflation and currency volatility risk impacting profitability and financial performance.

Catalysts

Operates as an airline company that engages in the provision of public airline transportation services in Greece and internationally.

• Aegean Airlines has experienced strong demand for travel, particularly during typically weak winter months, driven by increased visitation to Greece and improved domestic economic conditions, which could lead to higher revenue and more balanced seasonal performance.
  
• The company's investment in fleet expansion, including the acquisition of new Airbus aircraft, is expected to increase capacity for 2025 and beyond, which could contribute to future revenue growth and improved operational efficiency.
  
• Aegean's third-party training and maintenance center, despite initial setup costs, has begun operations, indicating an additional revenue stream in the long term as it develops its client base and offerings, positively impacting earnings.
  
• The strategic investment in Volotea, along with improved performance of this affiliate, may provide financial synergy and enhance Aegean's market position, potentially impacting overall earnings and strategic growth.
  
• The planned increase in Available Seat Kilometers (ASK), supported by aircraft fleet enhancements and returning flight routes, particularly in the Middle East, could drive higher revenue and operational scalability, despite regional economic challenges.

Aegean Airlines Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Aegean Airlines's revenue will grow by 3.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 7.2% today to 7.1% in 3 years time.
• Analysts expect earnings to reach €143.6 million (and earnings per share of €1.59) by about April 2028, up from €129.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.6x on those 2028 earnings, up from 7.9x today. This future PE is greater than the current PE for the GB Airlines industry at 8.0x.
• Analysts expect the number of shares outstanding to decline by 0.49% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.27%, as per the Simply Wall St company report.

Aegean Airlines Future Earnings Per Share Growth

Risks

• Geopolitical tensions affecting travel in the Middle East, particularly Israel, Beirut, and Oman, led to reduced operations in peak summer months, impacting potential revenue growth.
  
• Engine issues related to the GTF groundings resulted in operational disruptions and increased costs from wet leases, potentially affecting net margins due to increased maintenance and lease expenses.
  
• Increased competition with other airlines dedicating more capacity to Greece may challenge Aegean's market share and pressure revenue per available seat kilometer (RASK).
  
• Inflationary pressures on services, labor costs, navigation fees, and CO2-related costs could reduce operating profitability if not offset by increased demand or higher fares.
  
• Volatility in currency exchange rates poses a risk to financial performance, potentially affecting net income through increased operating costs and foreign exchange losses.

Valuation

• The analysts have a consensus price target of €14.18 for Aegean Airlines based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €15.6, and the most bearish reporting a price target of just €11.3.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €2.0 billion, earnings will come to €143.6 million, and it would be trading on a PE ratio of 12.6x, assuming you use a discount rate of 13.3%.
• Given the current share price of €11.52, the analyst price target of €14.18 is 18.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.