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Astonishing market cap figures show airline industry’s dramatic change

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I touched on this is in my article on LATAM Airlines Group selling an ownership stake to Qatar Airways and attempting to form a joint venture with International Airlines Group, but it’s worth highlighting on its own. During a presentation at the Latin American and Caribbean Air Transport Association (ALTA) Airline Leaders Forum in Mexico City, Deutsche Bank analyst Michael Linenberg noted some fairly astonishing market capitalization figures. I don’t know if there’s any better way of showing the staggering shift in the airline industry’s global order in the last five years.

 

Go back to 2011 when Chile’s LAN Airlines announced it had reached an agreement to acquire Brazil’s TAM to form LATAM. The implied market cap of the combined carrier was pegged at $12 billion. This is one of the reasons the merger was such a big deal: Not only would it create Latin America’s largest airline company, but it would create the most valuable airline in the world. Yes, in 2011, the highest equity value of any airline in the world was the forming LATAM at $12 billion.

 

This speaks to both how high flying the Latin American airline business was at the time and how tepid the air transport industry was elsewhere in the world, particularly in North America, which then had no carriers with a market cap of at least $10 billion.

 

Fast forward five years to the present day. LATAM’s market cap has plummeted to $5 billion, according to Linenberg, meaning it has lost more than half of its value since the LAN-TAM merger was announced. And it is now just one-seventh of the value of the airline with the world’s highest market cap—Delta Air Lines with an equity value of $35 billion.

 

So in five years’ time: 1) The geographic balance of power has shifted so far in the Americas that South America’s largest airline, which once bested all of the US carriers in terms of market capitalization, is now valued at just one-seventh of the market cap of the top US carrier. 2) The overall global picture has shifted so that, according to Forbes, there are now seven airlines with a higher market cap than LATAM’s $12 billion in 2011, including two US carriers with market values above $30 billion (Delta and Southwest Airlines). 3) The world’s most valuable publicly traded airline is now valued at nearly three times more than the most valuable airline in 2011.

 

The global airline industry is doing much better than five years ago, to be sure, but the Latin American airline business is doing much worse. The biggest shift has been in the US, which is now utterly dominant. Only Irish low-cost carrier Ryanair (market cap of $18.7 billion, according to Forbes) keeps the US from having the world’s four most valuable airlines (Ryanair just edges out United Airlines but trails Delta, Southwest and American Airlines).

 

Raise your hand if you could foresee this in 2011, which was just five years ago. I don’t expect many, if any, hands are raised. 

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