Once a luxury service for few travelers, flying has become a commodity. Very generally speaking, airline brands are no longer “love” brands, but they are still competence and reputation brands that reflect the technical aspects of flying, safety requirements, and the positive aspects of traveling. However, air transportation is an extremely competitive business globally. Although the market is growing steadily, the available aircraft and seat capacity is increasing at the same pace. Cost savings, rationalization, and profitability is a frequent and steady challenge for airlines.
This month’s peer group analysis from Markables illustrates trademark comparable data for 41 airline brands from 17 different countries. In this sector, trademark royalty rates are very low, ranging from 0.3% to 0.6% on revenues, with a median rate of 0.5% (see chart below). Based on these royalty rates, trademark accounts for approximately 8% of enterprise value. Average enterprise value multiples for the sector are 0.5x revenues, illustrating the weak profitability of the sector.
Two takeaways: There are two key takeaways from this snapshot. First, trademark royalty rates are surprisingly but consistently low, despite high brand awareness and marketing expenses of airlines. The analysis illustrates however the strong correlation between the value of intangible assets and the long-term profitability of a business. Companies with low profitability have little room in their financials to account for high values of intangible assets. Second, there is a case of a defunct Indian airline business that is subject to current government investigations on eventual fraud (Kingfisher Airlines). The brand was valued back in 2009, and apparently the valuation that was used to pledge and collateralize the brand was very high. A few years later, the brand turned out to be of no or very little worth. Using comparable data for previous transactions and purchase accounting helps to avoid such cases.
Markables, based in Switzerland, now has a database of over 8,200 trademark valuations published in financial reporting documents of listed companies from all over the world. The database reports value solely for the use of trademarks (not bundled with other rights).
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