Presentation Transcript

1. JetBlue Airways IPO Valuation

   廖庭鋒 段涵菁 張軒愷 梁輝政 樂野鷹輝 黃偉濤
2. JetBlue Airways IPO Valuation Background of JetBlue Airways What IPO means for JetBlue Should JetBlue jump into IPO? Is the market right? JetBlue IPO Price Valuation
3. About JetBlue Airways Key people David Neeleman, CEO & Founder David Barger, COO & President (a former VP of Continental Airlines) John Owen, CFO(a former executive VP and treasurer of Southwest) Growth Prepare for IPO
4. JetBlue Airways Strategy(1) Strategy JetBlue’s strategy was built on the goal of fixing everything that ‘sucked’ about airline travel. JetBlue highly focuses on customer service and provides an enjoyable flying experience. Passengers were offered a unique flying experience with new aircraft, simple and low fares, leather seats, free LiveTV at every seat.
5. JetBlue Airways Strategy(2) Strategy JetBlue focused on point-to-point service to large metropolitan areas with high average fares or highly traveled markets that were underserved. It’s well positioned in NY, the largest travel market. JetBlue delivers HR practice for providing good customer service - Employee's generous compensation and passionate communication with employee about corporate vision.
6. JetBlue Airways Strategy(3) Strategy JetBlue’s fleet afforded greater economies of scale because the airline had only one model of aircraft. Operating strategy had produced the lowest cost per available-seat-mile of any major U.S. airline in 2001—6.98 cents versus an industry average of 10.08 cents. JetBlue establishes a strong branding by seeking to be identified as a safe, reliable, low-fare airline.
7. What it means for JetBlue? What does “going public” mean for JetBlue？ It is the process of offering securities — generally common stock — of a privately owned JetBlue for sale to the general public. The first time these securities are offered is referred to as an initial public offering, or IPO.
8. Should JetBlue jump into IPO?
9. Reasons why Go an IPO
10. Reasons why Not to File an IPO
11. Is the market right? JetBlue has made significant progress in establishing a strong brand by seeking to be identified as a safe, reliable, low-fare airline. JetBlue is well positioned in New York, the U.S. largest travel market, with approximately 21 million potential customers in the metropolitan area. By April 2002, the U.S. economy has been stalled for a nearly two years. The FED has attempted to stimulate economic activity by reducing interest rate. The air-transport market looks bright. Especially from mid 2002, the revenue growth moves from negative to positive. (exhibit 11) Share price performances reflect high growth airline companies since October 2001. (exhibit 12) When a bull market comes, the market window for new corporate offerings tends to open and these new offerings enjoy bursts of popularity. We think it’s time for JetBlue go for IPO as the economy is becoming better.
12. JetBlue IPO Price Valuation Gordon Growth Model Method P/E Multiple Method Total Capital Multiple Discount Cash Flow Valuation
13. Gordon Growth Model Method
14. Gordon Growth Model Method In the JetBlue case, this method is not feasible. According to JetBlue management, “We have not declared or paid any dividends on our common stock. We currently intend to retain our future earnings, if any, to finance the further expansion and continued growth of our business. Without dividend information, this model cannot work for JetBlue’s IPO price valuation.
15. P/E Multiple Method
16. P/E Multiple Method(1) By P/E Multiple Method, we value JetBlue IPO price in the range of $28.5 - $36.3. *From Exhibit 3, we assume trailing ESP keeps the same as Diluted EPS, 1.14 in 2001. **Under leading scenario, we refer to exhibit 11 and assume ESP’s growth of 5% (from -10% in 2001 to -5% in 2002.) but due to U.S. economy stalling, we have a conservative growth rate of 3%.
17. P/E Multiple Method(2)
18. Total Capital Multiple
19. Total Capital Multiple(1) According to the formula of Total Capital Multiple, we use the average Total Capital Multiple of U.S. low-fare companies, and with JetBlue’s Book Equity/ Share & Book Debt/ Share, we can get JetBlue estimated IPO price = $22.4. By this method, JetBlue’s IPO price is highly skewed due to its book value of Debt and Equity. From its Balance Sheet in exhibit2, its book value of Equity is negative and book value of Debt is more than 100% of its total book value.
20. Total Capital Multiple(2)
21. Discount Cash Flow Valuation
22. Discount Cash Flow Valuation(1) By this method, we have strong assumption relying on Southwest’s data in exhibit 5 &6. Costs of Capital, Southwest Airline
23. Discount Cash Flow Valuation(2) Comparison between JetBlue and Southwest Airline *JetBlue revenue is from exhibit 3, 2001 Income Statement. Comparing the two, we adjust JetBlue’s WACC to 9.6% (mark up 1% to reflect its early stage of uncertain cash flows)
24. Discount Cash Flow Valuation(3) Note： 3,439 = 227 / (9.6% - 3%)；1,507 = 3,439 / (1+9.6%)^9 $848 reflects the sum of all the JetBlue value of Operations
25. Discount Cash Flow Valuation(4) Note：Value of existing Debts is from exhibit 2, JetBlue Balance Sheet, 2001 = ( 194,126 + 290,665 + 10,708 + 210,441 ) * 1,000
26. Discount Cash Flow Valuation(5)
27. What decision we suggest for JetBlue?
28. Summary For JetBlue IPO price valuation, we use several methods and get its IPO prices in the below table.
29. Summary Under P/E Multiple Method, it takes trailing and leading scenarios into consideration. Under Discount Cash Flow Valuation, it has a more precise valuation of JetBlue intrinsic equity value. Low cost airline carriers seemed to be the way of the future. It’s expected JetBlue will share the world airline market and account for more and more airline passengers. JetBlue has done very well with a very strong brand image. We believe JetBlue can set its IPO price to $ 25 - $26.