Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Alaska Air Group Are Soaring Today

By Lou Whiteman - Mar 10, 2020 at 4:13PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Investors take a fresh look at airline stocks after weeks of selling.

What happened

Shares of Alaska Air Group (ALK -4.08%) climbed nearly 10% on Tuesday afternoon as investors took a second look at airline stocks, which have been beaten down by fears of a travel slump related to COVID-19 outbreaks. The impact on airlines is real, but with shares of Alaska down more than 36% year to date heading into Tuesday trading, the sell-off is beginning to look overdone.

So what

Airlines have been among the sectors hit the hardest during the coronavirus sell-off, as investors react to travel demand all but evaporating in areas where the outbreak is most prevalent. The sell-off has increased in recent days as concerns grow that health fears will lead to sustained weakness through the key spring break and summer vacation travel seasons.

An Alaska Air jet in flight.

Image source: Alaska Air.

On Tuesday some of the nation's largest airlines announced plans to cut capacity in response to declining demand, easing concerns that the industry would end up in a balance sheet-destroying fare war. While Alaska has not said much other than to warn it expects first-quarter unit revenue to be down, the airline should benefit from its larger brethren taking action.

Airline stocks are also reacting favorably to the dramatic plunge in crude prices, which should bring down fuel expenses. The drop represents an annualized savings of up to $2 billion for some of the larger carriers and should help all of the airlines to at least somewhat offset falling demand.

Now what

There is a long history of airlines failing during downturns, so it's understandable that airline investors have been spooked by the negative headlines and suggestions that the coronavirus outbreak could drive the U.S. into a recession. However, airlines are far better prepared for a recession this time around than they have been in the past, and I believe all of the publicly traded carriers can fly through this turbulence.

Alaska Air is in the early stages of a turnaround story as it completes the integration of Virgin America and revamps its network to focus on areas of competitive strength. That turnaround could take longer than anticipated due to the coronavirus, but the long-term investment case for buying the stock is just as solid today as it was back in January.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Alaska Air Group, Inc. Stock Quote
Alaska Air Group, Inc.
ALK
$38.83 (-4.08%) $-1.65

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
317%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.