Warren Buffett may tout airlines as a great way to torch your investment capital, but there are exceptions. One great performer recently is Alaska Air Group (NYSE:ALK). The regional player has been steadily expanding its route coverage while simultaneously bumping up passenger revenue per available seat mile, or PRASM, which is a key measure of unit profitability. In its just-ended quarter, the company again surpassed analyst expectations and provided further evidence that management's plans to steadily and profitably expand the business are effective, to say the least. Even better for investors, the stock still has plenty of room to run.

Quarter recap
For the fiscal third quarter, Alaska Air hauled in an adjusted profit of $157 million, or $2.21 per share. Included in the generally accepted accounting principles (nonadjusted) number was a $120 million noncash revenue item. The Seattle-based carrier beat analyst expectations of $2.14 per share and posted a nice gain over the prior year's $2.09 per share. Through the first nine months of the year, the airline has generated $425 million in free cash flow.

The company continues to pay down debt, most recently bringing its debt-to-market cap ratio down by 7%, to 47%. On a net debt basis, the company is essentially liability-free. Its return on invested capital held steady at roughly 13%. The carrier's pre-tax earnings margin was 18.4%. And although PRASM has been a great rallying point over several quarters, total PRASM remained flat this time because of increased competitive pressure in some core routes. The figure should trend positive over the long term.

In previous quarters, management had expressed some concern with its Hawaii flights not maintaining capacity. That problem has since been fixed.

An industry ratings service cited Alaska Air as the most on-time airline of any domestic carrier, the most fuel-efficient of any domestic carrier, and No. 1 in customer service. If it all sounds great -- it was. This past three-month period marked Alaska Air's best quarter in operational history, according to management. It's the 18th month in a row that the company achieved a positive bottom line -- a striking number for the ever-volatile airline industry.

How high will it fly?
All of the great news surrounding Alaska Air, with the exception of competitive encroachment, bodes well for the company going forward. With an immaculate balance sheet and strong cash flow, Alaska Air can easily grow its routes, buy new planes as needed (it bought eight in the past 12 months -- in cash), and still find some left over to give back to shareholders in the form of a dividend or buyback.

Perhaps more than anything else, management has proved to be expert capital allocators. This is crucial for any business, but particularly so in the tight-margin, ultracompetitive airline business.

At 11 times forward earnings, an EV/EBITDA of under five times, and a price/earnings-to-growth ratio of 0.89, this company looks to be one of the best investments in the space. Forget the legacy carriers and the media-friendly mergers-and-acquisitions activity; Alaska Air is a highflier for any portfolio.

Fool contributor Michael Lewis and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.