Ari, Jerrick, Laura, Michael, Sungil Airlines Sector

History/Background Industry is comprised of 15 global corporations Boom in industry after WWII Growth lasted until 9/11/01 Airline industry in 2000’s Leading to bankruptcy of all but 1 of major airlines Historically, industry as a whole has made a cumulative loss during its 100-year history

Economics Major Revenue: Ticket Sales -Airlines often merge and form alliances and act as price discriminating cartels High level of fixed and operating costs: -Labor, fuel, airplanes, maintenance, insurance, etc. Partnerships increase volume and available destinations and reduce fixed costs

Industry Trends Pattern of ownership has been privatized in recent years after being highly regulated : 15%+ annual growth rates : 5% annual growth rates : bankruptcy Consolidation is a trend, business is hard In the U.S. alone over 200 airlines have merged, been taken over, or gone out of business since 1978

Management Gary C. Kelly Chairman of the Board, President, Chief Executive Officer Laura H. Wright Chief Financial Officer, Senior Vice President – Finance Michael G. Van de Ven Chief Operating Officer, Executive Vice President

Southwest Airline March 15, 1967 Air Southwest Co. Started 1971, Air Southwest Co had their first revenue flight and changed their name to Southwest Airline Co. 2006, with the Wright Amendment removed March 16, 1995, Southwest became one of the first airlines to have a website.

Airline Product Boeing 737 Airfare Price Rewards

Strengths Largest airline in the US Low-cost carrier Short Haul Airlines Bags fly free at Southwest

Weaknesses Employees Seating class Ticket Sales

Opportunities Expansion Meals Technology Private flights

Threats Terrorists Oil prices Weather Rivals

Horizontal/Vertical Analysis AssetsLiabilitiesEquity % (14.308B)-4.8% (9.355B)-28.6% (4.953) % (14.269B)-5.7% (8.815B)10.1% (5.454B) % (15.463B)4.66% (9.226B)14.3% (6.237B)

Technical and Quantitative Analysis Southwest Airline Market Capital: 9.24 Billion P/E: EPS: 0.61 Beta: 1.09 Regional Airlines Average Market Capital: 2.47 Billion Average P/E: 23.8 Average EPS: 0.78

United Continental Holdings (UAL) Operates two major airlines; United and Continental Hubs in Los Angeles, San Francisco, Denver, Chicago, Washington, D.C. and Tokyo Has global air rights in the Asia-Pacific region, Europe and Latin America United is a founding member of the Star Alliance, and offers connections to over 1,000 destinations in over 170 countries worldwide

UAL Management Jeffery A. Smisek: President, CEO, Director Zane C. Rowe: CFO, Executive Vice President Peter D. McDonald: COO, Executive Vice President

Founded in Boise, ID as local carrier Expanded to national carrier 1926 WWII Purchase of Pan Am opens up overseas travel 1985 Co-founded Star Alliance /11/01 Filed for ch. 11 bankruptcy 2002 Exit bankruptcy 2008 Merger between Continental and United 2010 United Airlines History

Strengths Controls many key air rights Largest U.S. Carrier to the People’s Republic of China Second largest airline in terms of fleet number Will be the only airline to operate all 3-ER models

Weaknesses Controversy about branding and advertising Has significantly higher fees than competitors Has to compete in the airline industry Vs.

Opportunities Opportunity to end branding controversy and unite brand by dissolving Continental name in 2012 Merger dramatically increases passenger volume and destinations available Continued growth of Asian operations

Threats Rising costs of jet fuel Terrorism via airplanes Global warming increasing the volatility of weather and changing patterns Economic downturn, meaning less leisure expenditures

Quantitative Analysis Market Cap: $7.66bil Current Price: $23.31 Trailing P/E: 21.6 (25.42) PEG: 1.58 (2.16) EPS: 1.08 (4.75) Operating Margin: 7.22% (11.49%) Profit Margin: 1% Quarterly Rev. Growth: 101.1% (1 out of 14)

Year Total ReturnPercentage 2007$20.143bil 2008$20.194bil+0.25% 2009$16.33bil-19.23% Horizontal Analysis

Vertical Analysis Total Assets 2009: $18.65bil Long Term Debt 2009: $7.57bil Thus, LT debt is 40.68% of Total Assets

Technical Analysis

Qualitative Analysis UAL’s poor financials are a result of the industry they are in. Merger of United and Continental in 2010 Key air rights in Asia Plus potential to be exclusive supplier to China Plus large fleet

Singapore Airlines Limited The airline is a subsidiary of Singapore government investment and holding company Temasek Holdings Strong presence in Asia markets Subsidiaries include SilkAir, SIA Engineering Company, SIA Cargo, Tradewinds Tour and Travel Strong brand name and trendsetter in terms of innovations, safety, and services One of seven airlines ranked a 5-star airline by independent research consultancy firm Skytrax

Management Stephen Lee Ching Yen (63) – Non-Independent Non Executive Chairman of the Board Goh Choon Phong (47)– Chief Executive Officer, Executive Director Chin Hwee Ng (49) – Executive Vice President for Human Resources and Planning

History May 1, 1947 Malayan Airways Limited 1972 Malaysia-Singapore Airlines split to two entities 1968 French designer Pierre Balmain designs the serong kabaya uniform and “Singapore Girl” debuts 1990s Revolutionized inflight communications and entertainment KrisFone (first global sky telephone service) and KrisWorld 1998 International Culinary Panel – world-renowned chefs to develop inflight meals October 25, 2007 A380, world’s largest commercial plane entered service with SIA

Airline Product/Services 108 fleets in service -Airbus A380 (largest passenger airliner) -Boeing 777, B747, A330, A340, A380 Suites, First, Business, Economy Classes Silver Kris Lounges (open to Suites, First, Business) In-flight entertainment and communication system Frequent Flyer Program (KrisFlyer, PPS Club)

Singapore Airlines Singapore Airlines flies to 65 destinations in 35 countries on five continents

Singapore Airlines Market Cap: $16.1 bil Current price: $13.50 P/E Ratio: (sector at 13.76) EPS: 1.96 Beta: 0.78 (sector at 1.15) No dividend declared as of Dec 2010 Q3 Revenue: $3.1 bil (12.4% up from 2009 Q3) Profit: $377 mil (63.5% up from 2009 Q3)

Technical Analysis

Strengths Diversified geographical spread Leading Airline in Asia Offers world gourmet cuisine to all classes Successful branding of “Singapore Girls” Youngest fleet of aircrafts Second Largest Airline

Weaknesses High risk industry Targets high-class customers Weak relationship between labor unions and management

Opportunities Growing Asia Pacific market Growing market in all Americas Increase in trans-pacific cargo Potential global expansion

Threats Rising Aviation fuel prices Increasing competition from low cost airlines Instability in the Middle East Crippling government regulations Fluctuations in world economy Terrorism Weather

Horizontal/Vertical Analysis AssetsLiabilitiesEquities % ($26.52 bil)4.59% ($11.39 bil)1.98% ($15.13 bil) % ($24.82 bil)-4.39% ($10.89 bil)-7.93% ($13.93 bil) % ($22.48 bil)-17.17% ($9.02 bil)-3.37% ($13.46 bil)

Comparison Airline Market Cap EPSP/E RatioRevenueBeta Southwest $9.24 bil $12.1 bil1.09 United $8.5 bil $23.2 bil0.99 Singapore $16.1 bil $12.7 bil0.78

Future of Airline Industry People will travel more as economy picks up Fuel prices could continue to hike up due to conflicts in the Middle East Rising fuel prices means ticket prices go up due to fuel surcharges to customers Air travel facilitates economic growth, world trade, international investments and tourism There is potential for airlines to expand globally and enter new markets

The End