Stock Spotlight

Alaska's flight still on the rise

Recent Price
$64
Dividend (estimated)
$0.80
Yield (estimated)
1.2%
P/E Ratio
15
Shares (millions)
134
Long-Term Debt as % of Capital
24%
52-Week Price Range
$71.40 - $40.69

Few stocks have been mentioned more often in the Forecasts over the last few months than Alaska Air ($64; ALK), a Focus List Buy and Long-Term Buy.

We obviously see a lot to like about Alaska. But don't just listen to us; plenty of others rave about the company:

• Alaska Airlines earned J.D. Powr's No. 1 ranking for customer service in 2014, its seventh straight year in that slot. The airline performed well in all seven of the tested categories and widened the gap between it and the No. 2 scorer.

• FlightStats, a provider of flight and airport information, computed an 87.8% on-time percentage for Alaska in 2014, ranking it best among major North American airlines for the fifth straight year. Nobody else topped 83%.

• According to travel-news website TravelPulse, Alaska's mobile app earns a quality index score more than triple the average for the rest of the industry.

While none of the feats mentioned above directly affect Alaska's investment value, they reflect management's commitment to quality and help differentiate the airline from competitors.

Alaska operates two airlines, its namesake and the regional carrier Horizon Air. The company has taken some heat on Wall Street for its aggressive expansion, entering 63 new markets since 2010. Last year, Alaska grew capacity (7.1%) faster than passenger traffic (6.5%), lowering the airline's load factor. The company expects capacity growth to peak at 11% in the March quarter and hit 8% for the year, below the growth it projects for the rest of the industry.

While Alaska may have trouble growing traffic enough to match capacity expansion this year, we're not ready to panic, for at least three reasons:

1) Despite Alaska's decline in load factor, or percentage of seats filled, it still topped its five largest U.S. rivals for the December quarter and the full year.

2) New routes have broadened and diversified Alaska's selection of flights, a trend that should continue this year. In 2005, 86% of the airline's flights served the state of Alaska and the Western U.S. That percentage is expected to be near 61% this year, with 17% to Hawaii and the last 22% midcontinental or transcontinental trips.

3) Sharply lower fuel costs have boosted margins at most airlines, but Alaska stands out from the res t- operating profit margins rose to 22.8% last year from 18.5% in 2013, widening at twice the average rate of its peers.

Industry-leading margins represent a sustainable competitive advantage. Alaska's airplane fleet averages 8.8 years old, among the youngest in the industry. The transition to newer planes has helped Alaska improve its fuel efficiency in each of the last 10 years. In addition, over the next four years, Alaska expects its unit costs excluding fuel to decline.

The combination of solid top-line growth and cost controls allows for generous cash flows (operating cash flow is up 17% annualized over the last three years) and commensurate sharing with stockholders. Last month, Alaska raised its dividend 60% and said it plans to spend even more on buybacks this year than last year, when the share count fell nearly 5%.

Obtain an annual report for Alaska Air Group Inc. at 19300 International Blvd., Seattle, WA 98188, (206) 392-5040, www.alaskaair.com.


 

Alaska Air

 
Quarter
Per-Share Earnings
Sales Change
Quarterly Price Range
P/E Ratio Range
Dec '14
$0.94
vs.
$0.55
8%
$60.94
-
$40.69
16 - 11
Sep '14
1.47
vs.
1.11
7%
50.14
-
41.84
15 - 12
Jun '14
1.13
vs.
0.74
9%
50.49
-
43.91
17 - 14
Mar '14
0.64
vs.
0.31
8%
46.97
-
36.28
17 - 13

 
Year (Dec.)
Sales (Bil.)
Per-Share Earnings*
Per-Share Dividend
52-Week Price Range
P/E Ratio Range
2014
$5.37
$4.18
$0.50
$60.94
-
36.28
15 - 9
2013
4.96
2.70
0.20
39.26
-
21.66
15 - 8
2012
4.66
2.37
0.00
22.57
-
15.65
10 - 7
2011
4.32
1.96
0.00
19.28
-
12.77
10 - 7

 
Quadrix Scores†
Overall
Momentum
Value
Quality
Financial Strength
Earnings Estimates
Performance
100
92
77
96
76
97
92

* Earnings exclude special items. NM Not Meaningful.
† Quadrix® scores are percentile ranks, with 100 the best.
e Dividend and yield estimated.

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Stock Spotlight

Alaska's flight still on the rise

Wednesday, February 25, 2015

Few stocks have been mentioned more often in the Forecasts over the last few months than Alaska Air ($64; ALK), a Focus List Buy and Long-Term Buy.

We obviously see a lot to like about Alaska. But don't just listen to us; plenty of...

Read More from Stock Spotlight

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