From: GIG Group JP Morgan To: Undisclosed recipients:; Subject: GIG Trade Update: Long Airlines Date: Thu, 18 Nov 2010 21:11:44 +0000 Attachments: GIO_Trade_Update_2010-11-10JUpdate).pdf Inline-Images: imagc007.png; imagc008.png; imagc009.png Global Investment Opportunities Group (GIO) Opportunistic Investments November 18, 2010 J.P.Morgan INVESTMENT IDEA: LONG AIRLINES Investors typically shy away from the airline sector given the group's volatility and history with leverage. However, we believe that there is currently an opportunity in airline stocks from both a trading and investment standpoint. JPMS LLC's airline equity analyst, Jamie Baker, highlighted in a report dated October 1 201Q the seasonality in airline stocks that investors could currently benefit from: over the past 30 years, buying airline stocks in September/October and holding until April/May has yielded a positive return 90% of the time with an average return of +35%. While we may be a little late (as it is now November), Mr. Baker's price targets on his top picks still suggest substantial upside from current levels. Furthermore, the industry is undergoing a number of structural changes that should support the sector longer term. Earnings reports for 3O were generally in line or beat estimates (with some companies raising 4O guidance) and confirmed some of the improving fundamentals the airline companies had guided towards earlier this year. The recent wave of consolidation in the space should help the industry manage capacity and pricing power and most management teams are also focused other profitability improvements: expense discipline has been exhibited through reduced aircraft orders and CAPEX plans and revenues are also benefiting from product unbundling (have you had to check in bags recently?). This focus on returns is leading to solid free cash flow generation with yields rising as high as 10.12% in 2011 for some companies. Lastly, the airlines are also focused on u