A comparison of the North America airline sector using some industry-specific indicators.
My colleague Rob Belanger and I started with companies that have a market capitalization of more than $500-million, and we sorted them from largest to smallest.
EV/EBITDAR (enterprise value divided by the earnings before interest, taxes, depreciation, amortization, and rent) is used to determine the value of a company. Since 36 per cent of the world’s airline fleet is currently leased, either dry (plane only) or wet (plane, crew and fuel), it is imperative that we include rent in the calculation. A low ratio indicates a company could be undervalued.
The break-even load factor is the percentage of seats the airline must sell to cover its costs. Escalating costs push up the break-even load factor, while increasing prices for airline services push it down.
The yield per passenger kilometre represents the average amount that a passenger pays to fly one kilometre, expressed in cents per kilometre.
The revenue passenger kilometres is the backbone of the transportation industry. It is the total number of paying customers multiplied by the distance travelled, in billions. This is used in conjunction with the yield per passenger kilometre.
We are also showing the fuel costs as a percentage of operating expenses. A higher number indicates a company is more affected by rising fuel costs.
OPM (operating profit margin) is a measurement of what portion of a company’s revenue is left over after paying for variable costs, such as wages and inventory. A high number is preferable.
What did we find?
The lowest EV/EBITDAR belongs to Hawaiian Holdings, which flies from Hawaii to 11 U.S. cities, and eight countries in the Far East. It is followed closely by Air Canada.
Copa Holdings has operations in Panama and Columbia, and has the lowest break-even load factor.
Air Canada, followed by WestJet, has the highest yield per passenger kilometre.
Republic Airways flies to 110 cities in the U.S., Canada and the Bahamas, and is the least exposed to rising fuel costs.
Lastly, Air Canada has the worst operating profit margin.
Always conduct further research or contact an investment professional before investing.
North American airline stocks
All currencies in U.S. dollars. Source: Bloomberg and Wickham Investment Counsel Inc.