Question

Why DDM and DCF valuation method are suitable/okay to use for valuing airlines ?

Answer 1

Dividend discounting model and discounted cash flow valuation models are suitable for used for the valuation of the airline industry because airlines stocks are often paying with the higher amount of dividend and these stocks are also distributing their profits to a large extent and they are also carrying out cash flow distribution so there will be offering up appropriate chance of getting themselves valued through dividend discount model which focuses at discounting of the dividend which are expected in the future at the present value in order to find out the the stock price of the company.

Discounted cash flow valuation techniques are often used with airlines industry because these are higher revenue generation industries and there is a very high amount of cash flows associated with these industries so these industries are also having a large amount of operational cost associated in form of cash flows and there are various lesser amount of higher investment made in this kind of industries so there is appropriate valuation techniques through discounted cash flow that cash flow generation levels are higher in overall airlines industry and hence it can be said that the risk associated with the volatilities of the cash flows are also there and we can adopt with the discounted cash flow method for airlines industry also because the cash flows can be discounted at the present value in order to find out the value of company.