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Module 3: Market Multiple Valuation Regional Airlines - jetBlue

Module 3: Market Multiple Valuation Regional Airlines - jetBlue. Michelle Kelly. Background. Low Budget Airline Modeled after Southwest Difference: jetBlue aims to be low cost but high quality. Headquartered in Queens, NY Major Airport: JFK Market Share: 5.1%

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Module 3: Market Multiple Valuation Regional Airlines - jetBlue

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  1. Module 3: Market Multiple ValuationRegional Airlines - jetBlue Michelle Kelly

  2. Background • Low Budget Airline • Modeled after Southwest • Difference: jetBlue aims to be low cost but high quality. • Headquartered in Queens, NY • Major Airport: JFK • Market Share: 5.1% • Serve 84 destinations in 24 states

  3. Inputs

  4. Inputs Chosen • Lowered growth rate to create a more conservative estimate and to better reflect market conditions • Use perpetuity growth rate of 2.5% • EPM increases to reflect higher operating margins gotten from implementation of newer aircrafts • EATO is increased to reflect the trend exhibited over the last three years.

  5. FCF Analysis

  6. Discussion • Enterprise Value of the Firm per the Balance Sheet is $5,047. • Hold NEA constant in year 2 because estimation of EATO caused a decrease, which is unlikely to occur

  7. Residual Income Model • Mathematically Equivalent to FCF Model • Model calculates the value of the firm based on the difference between actual and expected earnings • Expected earnings are calculated based off prior year NEA • REI = EPATt – (rent ∙ NEAt-1) • Enterprise Value = NEA0 + sum of the present values of REI + REI perpetuity.

  8. Residual Value

  9. Questions?

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