Tags: Alaska Air Group | ALK | airlines | stocks

Alaska Air a Hidden Gem Among Airlines

By Meghan Sapp   |   Friday, 22 Jul 2011 03:50 PM

Late arrivals, missing luggage, fuel fees, and increasing taxes makes air travel a hassle, and it gives airlines a hard time in convincing investors they have customer loyalty. But Alaska Air Group (ALK) stands out among the rest as a keen growth play. Alaska Air Group was one of only a few U.S. airlines that didn’t go through Chapter 11 bankruptcy after Sept. 11, and it came in at No. 2 for on-time arrivals in both May and June.

In June, Alaska Air saw a 7.9 percent increase in traffic, or revenue passenger miles (RPM). That’s in addition to a 6.8 percent increase in capacity, or available seat miles (ASM), compared to June 2010. Its load factor, the percentage of seats filled, was 85.4 percent, up 0.9 of a percentage point from June of last year.

Also in June, the company announced that its board of directors approved a stock repurchase program authorizing the company to buy up to $50 million of its common stock, to be purchased with cash on hand. ALK has repurchased a total of approximately 7.5 million shares of its common stock for nearly $212 million through similar programs over the past four years.

On a combined basis, including regional airline Horizon Air, overall ALK capacity increased by 4.8 percent while traffic increased 6 percent, resulting in a 0.9-point increase in combined load factor. These statistics include flights operated by SkyWest for Alaska under their capacity purchase arrangement but exclude flights operated by other third party carriers.

Aviation consultant Scott Hamilton told The Seattle Times that Alaska Airlines has done "some interesting things to make themselves more efficient," including pioneering online bookings and check-in and utilizing ticketing kiosks and the "flow-through airport design" at Seattle-Tacoma International Airport.

Young fleet

Citigroup recently raised its price target for Alaska Air Group to $79 from $77 and maintained its buy rating on the stock. “We see ALK as a hidden gem among airlines as result of its attractive valuation and more stable returns profile supported by a: (1) balanced network including dominant hubs; (2) young fleet (17% fuel efficiency advantage versus the industry); and (3) conservative call/cap-only fuel hedging strategy,” its analysts write.

ALK reported second quarter financials on July 21. Profits fell to $28.8 million, or 78 cents per share, from $58.6 million, or $1.06 per share on rising fuel costs. Revenues rose, however, 13.7 percent to $1.11 billion.

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Late arrivals, missing luggage, fuel fees, and increasing taxes makes air travel a hassle, and it gives airlines a hard time in convincing investors they have customer loyalty. But Alaska Air Group (ALK) stands out among the rest as a keen growth play. Alaska Air Group was...
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