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Air China value greater than United-Continental, American, JetBlue, AirTran & US Air combined. Pt 1

8-Mar-2011

Air China, with a market capitalisation of just under USD19 billion, stands head and shoulders above its global rivals on this measure. Singapore Airlines is a distant second, valued at USD12.7 billion. Such is Air China’s worth in the eyes of investors, the Beijing-based carrier is more valuable than US carriers United-Continental, JetBlue, Hawaiian Air, AirTran, US Airways, American Airlines, Republic Airways and Skywest combined (USD14.9 billion).

Three of the world’s top four valued airlines, Air China, China Southern and China Eastern, are Mainland Chinese. Lufthansa rounds out the global Top 5 airlines by market capitalisation.

Asia Pacific airlines account for nine of the Top 20, five are from Europe, with just three from North AmericaDelta placing top of the US airlines at number 10. Three of the four listed Latin American carriers feature in the Top 20.

Top 20 carriers by market capitalisation (USD, bill): 03-Mar-2011

Rank

Airline

Region

Market Capitalisation
(USD, bill)

1

Air China

Asia Pacific

18.99

2

Singapore Airlines

Asia Pacific

12.70

3

China Southern

Asia Pacific

10.54

4

China Eastern

Asia Pacific

9.20

5

Lufthansa

Europe

9.16

6

LAN Airlines

Latin America

9.12

7

Cathay Pacific

Asia Pacific

9.09

8

All Nippon Airways

Asia Pacific

8.80

9

Southwest Airlines

North America

8.65

10

Delta Air Lines

North America

8.47

11

United Continental

North America

7.40

12

Ryanair

Europe

6.99

13

IAG (BA-Iberia)

Europe

6.85

14

Qantas Airways

Asia Pacific

5.34

15

Hainan Airlines

Asia Pacific

5.03

16

Air France-KLM

Europe

4.87

17

Korean Air Lines

Asia Pacific

3.92

18

GOL

Latin America

3.47

19

TAM

Latin America

3.34

20

Aeroflot

Europe

2.92

World aviation a half trillion dollar “pathetic” industry

The total combined market capitalisation of the world's listed carriers is approximately USD208 billion – about USD40 billion less than the world’s biggest miner, BHP Billiton. Excluding the big three Chinese operators, the sum drops to just under USD170 billion.

Quite clearly, metal is much more valuable in the ground than in the air.

And that is the heart of the matter – airlines are enablers of economic and social activity. They produce seat kilometres, which over the past eighty years has become a commoditised, highly competitive offering. They operate in a quasi-liberalised environment and the presence of government-owned airlines means regulatory protection and subsidy are ever-present, which creates inefficiencies and market distortions. So-called level playing fields are impossible, resulting in an industry that has produced an average margin of just 0.1% over the last four decades.

IATA last week downgraded its airline industry outlook for 2011 to USD8.6 billion from the USD9.1 billion it estimated in Dec-2010, equating to a “pathetic” net profit margin of 1.4%, according to outgoing Director General and CEO, Giovanni Bisignani. Fuel is now estimated to represent 29% of total operating costs (up from 26% in 2010), thanks to the recent rise in oil prices above USD100 per barrel.

According to Mr Bisignani, “we have an industry that stumbles from crisis to shock with the margins of a charity association.”

Using the market capitalisations of listed airlines and the global fleet as a basis for extrapolation, the world’s airlines are worth approximately USD570 billion. But discounting the fact that many of the world’s best-run airlines are already listed, (having benefited from the disciplines of privatisation), the true value of the remainder is probably much less. Unlisted Emirates is the exception to this and was quoted in media reports as far back as 2007 as being worth as much as USD30 billion. With annual profit expected this year in the region of USD2 billion, this would value it today more in the realms of USD20 billion.

That suggests something is changing in the world of aviation. Emirates earns its value in a fully liberal market.

Tomorrow – airlines, global alliances and big companies compared...


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