On April 14, the UTair airline reported its performance in 1Q 2008. The company carried 675,000 passengers in 1Q, up 28.1% y-o-y. The passenger turnover increased by 22.2%. The helicopter division hauled 3,270 tons of cargo in the quarter, up 33.8%.
The robust operation of the helicopter division is hardly surprising, given that the company, an undisputed leader on the Russian market, is actively increasing its presence in foreign countries, primarily by forging ties with the UN. The rise in the number of passengers beat our expectations. We consider it necessary to turn investors' attention to the fact that the growth in the number of passengers outpaced that of the passenger turnover, which reflects the company's strategy aimed at a more intensive development of short-range regional flights. In our view, regional flights have the largest potential for growth in the current circumstances.
We are upbeat on the fact that the airline continued to grow faster than the entire market in the main segments of the aviation business. However, price spikes on jet fuel may impair the company's financials. Our estimates show that fuel expenses may constitute up to 50% of the carrier's total costs in 2008, which could eat into its margins. However, we believe the airline may succeed in passing its fuel costs on to passengers. In view of this, we retain our target price for UTair common shares at USD 1.16 per share as of year-end 2008, which implies an upside potential of 55% to the current stock valuations.
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