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Alaska Air Innovates to Save

By Michael Lewis - Sep 16, 2013 at 5:35PM

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The airline continues to prove it is an industry outperformer by cutting costs while increasing routes and capacity.

For some time now, Alaska Airlines (ALK -3.13%)has been an industry outperformer with rarely seen favorable metrics -- such as rising revenue per seat coinciding with big-time route growth. Unfortunately, it isn't much of a secret to the market: The stock is up just above 70% in the past 12 months. The good news is, positive data continues to filter in for the business, from awards to traffic figures. At less than 10 times earnings, Alaska Airlines is cheaper than some of the other high-flying airlines and can still provide investors with an attractive opportunity over the long term. Are you ready to fly with Alaska Air?

Recent accolades
Alaska Air has seen shares rise in conjunction with more favorable news. The company was recently named the most  fuel-efficient airline by the International Council on Clean Transportation. Over the past few years, it has seen its carbon emissions drop by 30% for using just two planes, the Boeing 737 and the Bombardier Q400. Both are the most efficient aircrafts in their respective classes. The airline also makes other efforts to save, including solar-paneled boarding ramps and increasing usage of biofuel blends.

Does the award imply that Alaska Air is saving big on its costs? Probably not meaningfully, but it is great to see management approaching cost management in an innovative and sustainable way as opposed to just slicing off another inch of legroom.

 The fuel-efficiency award wasn't the only piece of good news for the company lately. Earlier this month, it reported that its August travel numbers had improved nicely over the prior year's. Total passenger miles for the month hit 2.6 billion, up from 2.45 billion miles in 2012. Capacity grew by 7.3%, almost entirely driven by the core brand, Alaska Air. The company also owns Horizon Air, whose traffic grew by just 0.8%.

Both recent notes, while not mind-blowing on their own, are indicative of smart management and a group that seems to be bucking the trend of the typical lumbering, profit-slaughtering airline.

Smart moves
Those two planes -- the Boeing and the Bombardier -- make up a great fleet for this business. The Q400's are turbo props that are more fuel efficient and allow for greater route flexibility. The company is using these planes to fly the Fairbanks-Anchorage route. As opposed to the big jets, these planes give Alaska Air the ability to fly more routes in a given day, and save the jets for longer-haul flights such as the new Anchorage-Las Vegas or Anchorage-Phoenix flights. Service on these new Q400s begins next year.

In general, the company is expanding its routes at an impressive clip. As mentioned, it has, so far, found a way to accomplish this growth without sacrificing revenue per seat.

Investors should keep a close eye on Alaska Air as it continues to be one of the industry's best.


Fool contributor Michael Lewis has no position in any stocks mentioned, and neither does The Motley Fool. 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.

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Alaska Air Group, Inc. Stock Quote
Alaska Air Group, Inc.
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