Can Alaska Air Group Continue to Lead the Industry?

One look at the trajectory of Alaska Air Group's (NYSE: ALK  )  share price and you can tell the company has been faring well of late. The stock is up more than 70% in the last year and nearly 20% since January, and it outperforms both smaller competitors like JetBlue Airways (NASDAQ: JBLU  ) and larger ones like Delta Air Lines (NYSE: DAL  ) .

With such remarkable outperformance, however, investors must now consider whether the small airline still makes for a viable long-term investment. To decide, it is necessary to learn why share of Alaska Air Group have rallied in the first place. Let's find out by starting with the company's recent earnings report.

Alaska Airlines Logo. Source: Alaska Air

Record fourth-quarter earnings
Alaska Air Group's recent outperformance in the stock market was in part driven by strong quarterly results. The company reported net income of $77 million, or $1.10 per diluted share, in the quarter, which beat the average analyst estimate of $1.07. On a year-over-year basis, net income grew a staggering 49% from last year's $50 million.

Perhaps more impressive than the company's standout quarter is the consistency with which management has delivered solid earnings results. Alaska Air Group President and Chief Executive Officer Brad Tilden explained, "Today we reported record fourth quarter results and our 19th consecutive quarterly profit."

Also, several other positives came out of the company's most recent earnings release. For 2013, Alaska Air Group achieved a return on invested capital of 13.6%, which compares favorably to 2012's ROIC of 13%. The company also built up its unrestricted cash to $1.3 billion, which is equal to 21.8% of the company's market capitalization.

Finally, the company recently increased its dividend by an impressive 25%. Not only is Alaska Air Group one of the few airline companies healthy enough to pay solid dividends, the increase also stands out because the company just began issuing dividends to investors in mid-2013.

Fundamentals continue to lead the industry
One of the most impressive aspects of Alaska Air Group has always been the company's industry-leading fundamental metrics. The following is a breakdown of some key industry metrics:

Company Market Cap Debt ROIC Five-Year Avg. Net Profit Margin Dividend/Yield
Alaska Air $5.95B $888M 9.2% 10.23% $1.00/1.2%
Delta Air $28.1B 12.5B NA 4.75% $0.24/0.7%
JetBlue $2.49B 2.85B 0% 3.09% NA/NA

As the data above clearly indicates, Alaska Air Group is on a different level compared to listed competitors. But what gives the company such a consistent edge over its peers?

Unmatched customer service
The true strength of Alaska Air Group is in the company's unmatched customer service. This is what allows its flight brands to stand out and the company to maintain market share and fight off encroaching competitors in coveted areas like the Alaskan flight market.

For example, in 2013 the Alaska Airlines flight brand was named "Highest in Customer Satisfaction Among Traditional Network Carriers" by JD Power, which marks the sixth-consecutive year the brand has won the award. The flight brand was also named best major airline in the U.S. by The Wall Street Journal's "Middle Seat."

Source: Alaska Air

Clear skies ahead
When you consider the strong positioning of Alaska Air Group's brands among consumers, a corporate expansion seems like it would be a relatively easy process. Not surprisingly, management has done well expanding the company's routes. In the fourth quarter alone, Alaska Air Group added 10 new flight routes, including San Diego-Boise and Anchorage-Las Vegas.

Furthermore, the company has already announced the launch dates of seven more nonstop routes for 2014, the first of which is Portland-Salt Lake City scheduled to launch on June 9.

As long as management can steadily roll out new routes, the company should be able to continue leveraging its strong flight brands and capture new geographic markets. As such, Alaska Air Group remains my top pick in the airline industry and even appears to have the makings of an ultimate growth stock. But do Motley Fool analysts agree?

Read on to find out if Alaska Air Group is an ultimate growth stock!
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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 09, 2014, at 5:25 PM, allmymarbles wrote:

    Some years ago I bought Hawaiian because it was undervalued, and because I liked Dunkerley's long term view. I hung on to Hawaiian, in spite of its lack of attention by Wall Street media and in spite of its being stymied by short sellers. I saw Alaska as another fine airline company and kicked myself for not splitting my airline investment.

    Hawaiian is finally getting the attention it deserves and I look forward to reaping a long-awaited reward. Now I am thinking again abut Alaska and wondering if I missed the boat. Your article says I haven't, that it is still an attractive earner so I will probably wind up owning two airline stocks. One thing is for sure, like Hawaiian, Alaska is well run.

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Philip Saglimbeni

Philip is an avid investor and writer. He contributes to The Motley Fool and Seeking Alpha. You can follow Philip on Twitter @philsags.

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