Global airline initial public offerings still need a tailwind to fly. Among those waiting to list are Hong Kong Airlines, Virgin America and Bangkok Airways. Yet, most such sales since 2010 have lost altitude. Hopefuls need something special to buck the industry's trend of value destruction.
Only three out of 15 global airline stock listings since the start of 2010 are trading above their offer price as of October 3, according to an analysis by Breakingviews. Low-cost US carrier Spirit Airlines has performed best; Singapore's budget Tiger Airways worst. Returns in the industry worldwide remain 2.2 per cent below the cost of capital, the International Air Transport Association reported in June.
There are some signs of a smoother ride ahead. Airlines were the best performing sector in the S&P 500 Index in the past 12 months, according to Eikon. The Centre for Aviation estimates 80 per cent of airlines based in South East Asia were unprofitable in the first half of the year but that overcapacity may have peaked as several slow their expansion.
More From This Section
Then there are all-out gimmicks. Hong Kong Airlines International is attempting the city's first dual currency listing, in Hong Kong dollars and Chinese yuan, which may raise around $600 million. It may even offer retail investors discounts or free flights if they hold onto the shares for one year, according to a person familiar with the situation. Malaysia's AirAsia X and Japan's ANA Holdings did something similar in the past.
Airline IPOs haven't been great at creating value for shareholders. Virgin America, has a particularly tough sale ahead. Despite revenue growing at 5 percent in the first half of 2014, it must contend with the poor track record of other Virgin-branded companies, including loss-making Virgin Australia. Even with creative thinking, the wind is not blowing in new issuers' favour.
