The house multiple for airlines is EV/EBITDAR, where R = aircraft/operating lease Rentals. After IFRS 16, R is the lease-related depreciation and interest. Why add rentals back?
Because carriers make opposite own-vs-lease choices. A lease-heavy LCC shows lease rentals, or ROU depreciation + lease interest. An ownership-heavy legacy carrier shows owned-aircraft depreciation and interest on purchase debt instead. On plain EBITDA the two aren't comparable, because one has stripped fleet cost out (it's in rent) and the other hasn't fully. EBITDAR adds back all fleet-financing cost, meaning rentals and/or lease depreciation+interest. What's left is a clean pre-fleet-financing cash operating profit that you can compare across (a) leasing-heavy vs owning-heavy carriers and (b) IFRS 16 reporters vs US-GAAP reporters.
To match, the EV must include capitalised lease obligations as debt. After IFRS 16 they're already in reported debt. For US operating leases, add the disclosed lease liability. In the old off-balance-sheet world, analysts added ~7 to 8× annual rentals as a proxy. So: EV/EBITDAR = (market cap + net debt + capitalized leases) / (EBITDA + rentals).
You already know the next rule from commodities and real estate. Restated for a cyclical with brutal operating leverage, it reads: never value an airline on trailing P/E. Capitalise peak-cycle earnings at a normal multiple and you'll overvalue the airline wildly. At the trough, losses make P/E meaningless. Use EV/EBITDAR on a normalised, through-cycle basis, and cross-check it against days-cash and lease-adjusted leverage for survival.
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Example: IndiGo against the failed carriers
Now put a real carrier against the graveyard. IndiGo (InterGlobe Aviation) is the sector's proof that a tightly run low-cost operator can beat the disease. Its playbook is all cost advantage and efficient scale. It flies a single fleet family (A320/A321neo), which slashes maintenance, training, and spare-parts complexity and gives it the lowest CASK ex-fuel in Indian aviation. Its aircraft utilisation leads the industry and its turnarounds are fast. Load factors run high, in the mid-80s%, and the ancillary mix is large and rising. Then there's its dominant domestic market share (~60%). That's efficient scale: enough frequency on enough routes that a subscale rival can't match its cost per seat. IndiGo also kept a comparatively strong balance sheet and healthy days-cash while rivals over-levered. (Figures illustrative, modelled on ~FY24/FY25 scale. Pull the actual annual report and investor presentation.)
The graveyard carriers did the opposite. They ran higher CASK on mixed fleets and older planes. They chased share with fare cuts, so load factor stayed high while yield collapsed. They carried negative net worth and weeks of cash, hedged nothing, and grew fleets into softening demand. That's every airline red flag at once.
How does the US compare?
The US has its own mirror. Southwest built the original low-cost, single-fleet-type (737) model, and it made Southwest the rare consistently profitable carrier for decades. That advantage has narrowed as legacy carriers restructured. A Delta/United/American legacy carrier shows the other profile: higher-cost, hub-and-spoke, once through bankruptcy. The lens is the same on both continents. Only the currency changes.