Panasonic Avionics

In late 2020, Panasonic Avionics, in conjunction with a major airline, conducted a trial providing passengers unlimited inflight Wi-Fi. The trial ran over several months with the goal of finding out how the airline could enhance the relationship with their passengers by providing high-quality onboard Wi-Fi. Specifically, it allowed them to better understand if Wi-Fi boosted passenger loyalty; to see if Wi-Fi facilitated a better understanding of passenger behavior; and if better Wi-Fi correlates to an increase in potential revenue.

The Wi-Fi experiment was quietly rolled out on 109 aircraft with very limited promotion but once available, the service was quickly discovered by passengers – and they began streaming. On average, the engagement time per user increased by 23%, streaming content was viewed 41 minutes more with YouTube and Netflix being the top choices watched by passengers and music aficionados tuned into their Spotify and Apple Music Apps to stream their favorite tunes. Prior to the trial the average passenger data consumption per aircraft was 1.6 GB of data which jumped to 3 GB during it.

The trial ran during the holiday travel times, which had the highest travel numbers since the start of the pandemic. Even with the increased load factors, complaints about slow inflight internet rates fell by up to 46% in December and 61% in January! Amazing.

The most significant takeaways from the trial: 1) Fast, reliable, highspeed internet is a cornerstone of the passenger experience. 2) Increased usage of streaming apps, either via PEDS or seatback screens, provide a big opportunity for increased revenue-generating ads and content for the airlines.

Panasonic states that the trial was possible because of their Gen-3 network of high speed, high bandwidth Ku-band satellites that direct capacity to where it is needed most. Panasonic reports that In February, their first of high-throughput satellite (XTS) joined their network and entered service over Asia-Pacific. Also, the new Newtec modems played an integral part in the success of the trial. Additionally, the migration from Panasonics’ previous generation IFEC technology means faster browsing and higher reliability in video streaming. The Gen-3 network also enables 4G and VoIP services and powers Live TV channels like Sport 24.

The trial proved that passenger demand for highspeed, high quality internet is growing. This is supported by: 1) an increase in long-haul flights 2) passengers are carrying more connected devices 3) high customer expectations for technology and airlines. Further, the increase in BYOD (bring your own device) will continue the drive the demand for high quality, connectivity. Perhaps more significantly, this increasing expectation and new demands for inflight services are encouraging airlines to brand their onboard entertainment experiences, not only for the seatback IFE, but also the BYOD and to coordinate these efforts with the IFEC manufactures.

Embracing highspeed, reliable connectivity will put airlines in a better position to meet their passenger needs, both now and in the future, whether the service is free or paid. As the industry begins to recover from the pandemic, maximizing connectivity will be a major differentiator.

Also From Panasonic Avionics & JetBlue:

JetBlue announced  that it has selected Panasonic Avionics (Panasonic) for its live sports in-flight offering on the airline’s Airbus A321 Long Range aircraft.

This offering will expand JetBlue’s transatlantic inflight entertainment options to include one  channel of live sports, Sport 24, with satellite-based streaming facilitated by the airline’s connectivity provider. JetBlue’s new fleet of Airbus A321LR aircraft due to be delivered from 2021 onwards, will be outfitted with the service.

Panasonic is the exclusive provider of Sport 24, the world’s first and only live in-flight sports platform. It broadcasts 24-hours a day, 365 days a year, connecting airline passengers to over 16 hours of premium live content from over 30 different global sports leagues each day.

From 2021, JetBlue’s customers will be able to enjoy all the live action from the world’s top sporting events, including the NFL, NBA, NHL, all four Tennis Grand Slams, all four Golf Majors, the NRL, the UEFA Champions League, English Premier League, Bundesliga, and more.

Sport 24 creates a unique viewing experience for passengers – from the casual to the avid sports fan – which results in a dwell time almost three times higher than the most popular US sports channel.

Almost 1,000 aircraft across the globe are installed with Panasonic’s Live Television service, of which Sport 24 are an integral part.

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Hiring Trends Survey: Covid-19 Impact Results

JSfirm.com, an aviation job website, released their Hiring Trends Survey for 2021. Of the hiring professionals, executives, and business owners surveyed, over 50% are projecting growth in 2021. Additionally, 66% of those surveyed did not cut any jobs in 2020, despite the impact of the COVID-19 pandemic on the economy.

In summary:

• 200 aviation companies across various sectors were surveyed
• 84% are projecting moderate growth in 2021
• 93% expect to hire in the 2nd Quarter (Apr – Jun) of 2021
• Pilots, maintenance & avionics technicians remain in highest demand

Sam Scanlon, Managing Partner of JSfirm.com, said, “The results of our recent survey are encouraging for the industry. It’s interesting to see how many companies were not affected too much by the pandemic: airlines make the headlines, but the fact is, the small to medium size companies that make up the majority of our infrastructure made it through the past year and are now gearing up for growth.” He continued, “Overall traffic on our website continues to increase from both job seekers and companies – we are anxious to see how the remainder of 2021 plays out.”

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Morgan Stanley
Airlines: More than Just a Re-Opening Trade; Fundamentals Still Supportive of Upside: Upgrade UAL, ALK; Initiate on AAL

Morgan Stanley (MS) reiterates their Attractive view on the US Airlines despite the stocks up 85% in the last 5 months. With a clear path to re-opening now in focus, they look out to 2022+ and find consensus numbers are too low given their view of strong volume and cost tailwinds. MS are ~30%+ above consensus in 2023.

They initiate coverage on American Airlines (AAL) at Underweight. MS upgrades Alaska Air Group (ALK) from Equal-weight to Overweight and United Airlines (UAL) from Underweight to Equal-weight. Remain Overweight on Southwest Airlines (LUV), JetBlue Airways (JBLU), Allegiant Travel (ALGT) and Delta Airlines (DAL).

MS sees ~30% upside to our price targets and 45% upside to consensus 2023 estimates, on average, driven by quick rebound of air traffic, structural cost savings and a supportive jet fuel environment. They also believe a Roaring ’20s/Swinging ’60s-like macro environment can drive traffic significantly higher than a 2019 baseline level, in a bull case. MS sees the most upside at names with the most idiosyncratic tailwinds especially LUV, JBLU, ALK and ALGT though international and corporate could also surprise to the upside relative to expectations keeping the Legacies in play (especially DAL).

Morgan Stanley also believes the market is missing a few powerful tailwinds driving upside to our estimates vs. consensus:

1. 2022+ estimates still do not reflect a rapid reopening. The circumstantial evidence points to the bull case on a traffic recovery. Yet, consensus is modeling in 2022 revenues ~20% below and 2022 ASMs (Available Seat Miles or volume) ~10% below 2019 levels, which we believe is too conservative. MS continues to expect a return to 2019 ASM levels on average by end 2021/early 2022, which implies 2022 ASMs at least equal to 2019 levels.

2. 2019 is the wrong baseline to use for 2023 and beyond. They used 2019 as the baseline for the reopening but consensus (and the market) appear to be maxing out at that level. MS believes the ceiling for air traffic can be significantly higher in a Roaring ’20s/Swinging ’60s like macro environment, which is possible given the strength of consumer balance sheets. In the 1920s, passenger car miles driven nearly doubled in 5 years above the WW1/Spanish flu baseline of 1918 and again after WW2 in the 1950s, while the emergence of commercial air travel saw passenger volumes up 6x in 5 years. While travel today is certainly more mature, we would not be surprised to see the return of the “golden age” of travel in the 2020s, which would represent upside to our numbers.

3. Structural cost savings suggest margin upside on rising volumes. Several airlines have provided either LT structural cost savings targets (UAL, JBLU, AAL) or benchmarks for achieving 2019 CASMxF (Cost per Average Seat Mile ex-fuel) levels (DAL, LUV). These targets imply margins should be comfortably higher than 2019 levels, if 2022/23 revenues are at a similar level, as expected.

4. Jet fuel pricing is in a sweet spot. Despite jet fuel prices rising 40% off the 2Q20 bottom, we note that: a) fuel prices are still comfortably below 2019 levels, b) current levels could be supportive of industry pricing, and c) our Energy team believes that in the long-term oil prices will stabilize at $50-55/bbl level (vs. ~$60 today), providing further support for structurally higher margins than 2019.

Riding the biggest waves in the rising tide + Idiosyncratic catalysts characterize our top picks.  Morgan Stanley likes airlines with catalysts that will help them outgrow the rising tide. This means Low Cost Carriers (LCCs) and Ultra Low Cost Carriers (ULCCs) with a US Domestic Leisure footprint that will rebound first though we expect International and Corporate travel at Legacy carriers to catch up in 2022. Also, we prefer stocks with idiosyncratic catalysts, including LUV (MAX transition, new corporate/GDS integration), JBLU (fleet renewal, international operations, AAL alliance), ALK (MAX transition, AAL alliance) and ALGT (20% larger fleet). They also prefer Airlines that are likely to start returning cash to shareholders first, given limited to no balance sheet impairment. Legacy airlines are likely to experience the rear of the rising tide and the balance sheet needs to be fixed before cash return or growth investments can occur. DAL is their top Legacy pick.

MS initiates on AAL at UW and a $20 PT (20% downside to the current price) – we believe AAL will rise with the industry tide of returning air traffic and they like its young aircraft fleet which could limit capex pressure in the critical years ahead. However, with the stock up over 50% YTD, positioning is no longer skewed as negative as it used to be, which raises the bar. Our FY23 EPS is roughly 40% below 2019 levels. They are also upgrading ALK from EW to OW (PT from $49 to $90 or 30% upside) and UAL from UW to EW (PT from $38 to $65 or 12% upside) as they see more favorable relative risk-rewards than previously.

Risks to their bullish view include another black swan macro event, labor shortages/disruptions, runaway inflation that pressures the consumer’s balance sheet, safety issues (like COVID resurgence or MAX in 2019) and sharp jet fuel inflation could put our 2022/23 estimates at risk.

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