Alaska Air's Path Shows Brief Turbulence, Smooth Future

With costs rising up ahead, the airline may not post the best financials. In the long run, though, this is still a fantastic airline to own.

Jan 31, 2014 at 10:01AM

The widely detested airline industry saw a surprisingly strong year in 2013, but will its run continue this year? One of the strongest of the pack, Alaska Air Group (NYSE:ALK), showed the precious combination of route growth and increasing unit level revenue. In its recent earnings report, though, the company frightened investors and analysts with tepid guidance and a warning that costs will lift off, at least for a little while. Still, this is one great airline that features an incredibly fuel-efficient fleet and strong brand loyalty for its niche routes. In the coming year, Alaska Air will continue to grow, just with some some associated growing pains. Is that a reason to sell?

Earnings continue to climb
It wasn't the recently reported quarter that sent the airline stock down. Alaska Air again beat estimates on both the top and bottom lines.

In its fourth quarter, the company hauled in $1.2 billion in sales -- a 7% gain over the prior year's number -- and an adjusted $78 million in net income, or $1.10 per share. The latter number comes in at an impressive 77% premium to the year-ago quarter, as well as $0.03 more than the analyst consensus, according to Reuters.

Besides greater ticket sales, a 5% drop in fuel costs helped give the numbers a nice boost.

Alaska Air continues to add a list of awards and accolades to its already impressive shelf. The company has a variety of "Best Airline" and "On Time" credits from sources such as The Wall Street Journal and the U.S. Transportation Department. As mentioned in management's conference call, the company completed 87% of its flights on time for the year. The company boosted its shiny image even more recently when it announced that employees would receive more than one-month's pay in bonus.

The company launched 10 new routes in the quarter and announced seven more new routes.

Storms ahead?
Though the numbers looked great, Wall Street shied away as Alaska Air delivered tepid first-quarter guidance. The cause is rising costs across the board. Alaska Air has two recently negotiated labor deals, one with pilots and one with flight attendants, that are expected to immediately increase costs.

As reported in Barron's, Cowen analysts cited higher fees at the Port of Seattle, which manages Alaska Air's hub airport, and a recent switch between ground handler companies on the East Coast as two sources damaging costs for the company.

The thing is, the headwinds all speak to short-term pressure. There was little talk of Alaska Air's competitive position eroding (because it isn't), or of its prized fuel efficiency deteriorating. On a fundamental level, the company remains incredibly attractive. Management forecasts a 5.5% bump in capacity for the coming year. The company has a public image that is only improving. Its employee relationship appears strong in light of the record bonuses and revised agreements.

For an airline, or any asset-heavy business for that matter, Alaska Air has a great looking balance sheet. The company has a pension fund that is more than 100% funded. It carries zero net debt. That's not because the company isn't investing in itself. Alaska Air's average fleet age is under 10 years old. Compare that to American Airlines, which is pushing 14 years. Alaska also has dozens of firm commitments for new aircraft going forward.

In the coming quarter or two, Alaska Air may not blow estimates out of the water like it has in the past, but this is still a long-term industry winner. Any use of the term "winner" in the airline industry deserves special attention.

More from The Motley Fool 
If you're looking for some long-term investing ideas, you're invited to check out The Motley Fool's brand-new special report, "The 3 Dow Stocks Dividend Investors Need." It's absolutely free, so simply click here now and get your copy today.

Fool contributor Michael Lewis has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers