Wheels Up Set To Take Flight

Aug. 08, 2022 11:59 AM ETWheels Up Experience Inc. (UP)7 Comments
Don Dion profile picture
Don Dion
12.69K Followers

Summary

  • Travel hiccups continue to make private aviation appealing.
  • Wheels Up has a high level of brand recognition that will appeal to investors and travelers alike.
  • Strong leadership and a lack of debt will help Wheels Up in the future, so the stock continues to be appealing from a valuation perspective.

Empty airport at sunset

Wheels Up is a strong player in the private aviation space.

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Flying can be akin to roulette these days. Flight cancellations due to coronavirus restrictions, pilot shortages, and weather delays are widespread. Thousands of flights have been delayed or canceled this summer. In fact, more flights in 2022 have been canceled through mid-year 2022 than all of 2021.

In addition, some airports have capped the number of departing passengers. Schiphol Airport in Amsterdam has capped passengers to 67,500 per day, while Heathrow Airport in London has capped the number of departing travelers to 100,000 per day.

Flight cancelations in the United States continue to be significant as well. La Guardia Airport tops the list with 8% of flights canceled. Newark Liberty International, St. Louis Lambert International, and Raleigh-Durham International had 6% of their flights canceled.

Still, corporate executives and wealthy individuals want and need to travel. We believe that the private aviation industry is absorbing that demand. In our opinion, many of these CEOs and wealthy individuals may find that once they experience private aviation, they don't want to return to traditional airports. Wheels Up Experience Inc. (NYSE:UP) has strong brand recognition and is set to continue to be a lead player.

Robust, experienced leadership and attractive valuation make Wheels Up a buy for us at these levels.

Disclosure: Risks of Investing in Microcap Stocks

With a share price of less than $3 and a market capitalization of just $500 million, Wheels Up is considered a microcap stock. There are many risks in investing in microcap stocks, including increased volatility and potential lack of liquidity. While we recommend Wheels Up as a medium-term investment, we urge investors to approach Wheels Up cautiously and as part of a larger, balanced investment strategy. We would not recommend this stock to risk-averse or conservative investors.

Wheels Up Experience Inc. Overview

Wheels Up Experience is one of the largest private aviation companies, providing a comprehensive portfolio of services to non-owner fliers as well as jet owners. The company has over 200 aircraft in their owned and leased fleet, and offers access to over 1,200 third-party aircraft, including multiple aircraft types and categories. This includes aircraft in the jet light, mid-size jet, super mid-sized jet, and large cabin jet categories. The company also maintains a strategic partnership with Delta Air Lines (DAL).

Their app enables travelers to search and book flights quickly from their smartphones. Their membership program offers clients enhancements like empty-leg hot flights, flight sharing, shuttle flights, company events, and other member benefits from luxury brands.

In addition to simplifying the experience, acquisitions have been a part of their growth. In May 2019, Wheels Up acquired Travel Management Company, which is a light jet operator in Indiana. In September 2019, the company acquired Avianis, a flight management system provider. In 2020, the company acquired Delta Private Jets, which is Delta's private aviation branch. This gave Delta a 27% equity stake in Wheels Up. In March 2020, Wheels Up acquired Gama Aviation Signature, and in 2021, it purchased Mountain Aviation, which provides maintenance and operation services for Cessna Citation Xs.

Wheels Up reported $1.2 billion in revenue for 2021. This is up significantly from $695 million in 2020 and $385 million in 2019.

Wheels Up Experience Financial Overview

On May 21, Wheels Up reported its first quarter financial results for the period ended March 31, 2022:

  • Revenue grew to $325.6 million for an increase of 24%
  • Active members reached 12,424 for an increase of 25%
  • Live flight legs were 17,625 for an increase of 26%
  • Net loss was $56.8 million versus a net loss of $89 million in the same quarter last year
  • Adjusted EBITDA was $40.8 million versus $49.4 million in the same quarter last year

Stock Performance

Wheels Up Experience went public on July 14, 2021. On July 16, it closed at $10.25. It declined to $7.01 on October 29, 2021, yet saw a brief rise to $7.80 on November 5. Since that time, UP has declined steadily and now trades in the $2.25 to $2.50 range.

The decline could be incorporating some of the pessimism that has swirled around stocks that were taken public by SPACs. Many stocks in that category deserve skepticism about whether or not they are even viable businesses. But Wheels Up should be considered as separate from that crowd.

Valuation Summary

Even if one doesn't buy into the description that bills Wheels Up as an Uber or Airbnb sort of business, and even if one is skeptical about the TAM expansion aspects of their story, at these levels the stock could still be appealing. Especially given that the company is led by an executive who previously built and sold a successful private aviation business.

The stock could top out at approximately $4B in revenue ten years from now (giving the company credit for achieving only a fraction of their expanded TAM estimates) while settling for operating margins that rise gradually and level off near those of non-private airlines, and that could still imply a valuation of about $4.75/share.

One could even apply a hefty probability of failure and still end up with a price target higher than current levels, and that likely would not be appropriate given their lack of debt.

Going Forward

The company has a strong brand name (the below chart from Google Trends has them on par with NetJets, a major player in private aviation), and once people fly private, in my opinion, it is difficult to reverse the habit, which are two tailwinds that should help them pass along cost increases eventually.

Graphical user interface, chart, application Description automatically generated

Google

Source

Although one shouldn't expect the company to turn profitable overnight, at some point in upcoming quarters, it would be a positive sign to see evidence that steps have paid off to better offset surging expenses like fuel and labor.

Earnings will be reported on August 11th, after the closing bell.

This article was written by

Don Dion profile picture
12.69K Followers
Don Dion is the CEO of Inland Management, a company focused on acquiring, subdividing, developing and marketing large tracts of land on the fringes of major metropolitan markets. Inland Management has sold land in all 48 contiguous states totaling billions of dollars. As CEO, Don is responsible for helping to maintain and enhance the firm’s strong financial position and identifying opportunities for growth. In addition to his role at Inland Management, Don Dion is the Chief Investment Officer of DRD Investments, LLC. Based in Naples, FL. and Williamstown, MA., DRD Investments is a family office focused on managing a long/short hedge fund, real estate, venture capital and various other financial assets for the Dion family. Don also serves as the trustee of the Dion Family Foundation, which focuses on helping individuals with tuition assistance at Catholic Institutions for grammar school, high school, and college education. The foundation also helps individuals by supporting Massachusetts General Hospital. Don is on two leadership boards and advisory committees at Massachusetts General Hospital and the Home Base Program (a partnership between Mass General and the Red Sox Foundation). He consults with Saint Dominic's Academy and serves as a trustee of Saint Michael’s College. Previously, Don was the founder and CEO of Dion Money Management, a fee-based investment advisory firm for affluent individuals, families and non-profit organizations. Founded in 1996 and based in Williamstown, MA. and Naples, FL., Dion Money Management managed approximately one billion in assets for clients in 49 states and 11 countries. While at Dion Money Management, Don was responsible for setting investment policy, creating custom portfolios, and overseeing the performance of client accounts. Don sold the firm to NYC-based Focus Financial Partners (FOCS) on September 1, 2007 and no longer manages money for other families or institutions. Don remains a shareholder of Focus Financial Partners (FOCS). Don is also the retired publisher of the Fidelity Independent Adviser family of newsletters, which provided a broad range of investor commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With nearly 100 thousand subscribers in the United States and 29 other countries, Fidelity Independent Adviser published two monthly newsletters and one weekly newsletter. The flagship publication, Fidelity Independent Adviser, was published monthly for 16 years and reached over 60,000 subscribers. In 2011 Don and his daughter Carolyn co-authored the Ultimate Guide to ETFs, available on Amazon.com. Prior to founding Dion Money Management, Don co-founded Litchfield Financial Corp. (LTCH) with Summit Partners. Don served as Chairman and CEO of Litchfield, which was listed on the Nasdaq in 1992 and acquired by Textron Corp. (TXT) in 1999. Don was also the Executive Vice President, CFO and General Counsel for Patten Corporation (BGX) from 1986 to 1988, where he played a critical role in the company’s successful initial public offering on the New York Stock Exchange. From 1983 to 1985, Don was a corporate lawyer with the Boston Law Firm of Warner and Stackpole. Before joining Warner and Stackpole, Don worked as a C.P.A. for Ernst and Young from 1979 to 1983. Don graduated with honors from Saint Michael’s College in 1976 with a B.S. degree in Economics and Business Administration. He received his J.D. from the University of Maine Law School in 1979 and his LL.M. from Boston University Law School in 1982. Don can be reached at donalddion@gmail.com

Disclosure: I/we have a beneficial long position in the shares of UP either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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