Alaska Airlines: An outstanding regional carrier
Alaska Airlines (ALK) has had an outstanding performance this year. The stock has rallied 53% YTD while the S&P 500 has rallied 14%. The airline has also outpaced major airlines such as Delta Air Lines (DAL) and United Continental Holdings (UAL), Figure 1. Although several investors do not agree with the idea that Alaska Airlines is a good investment, I would like to discuss two press releases that point out the company's near term growth. For these reasons, a long position may be considered in ALK.
The company is trading with a P/E of 15.21, and a forward P/E of 10.19. Its price-to-earnings-to-growth is 1.04. Its balance sheet carries a small debt, with a debt ratio of 0.65. The company held $1.3 billion in cash as of the end of the last quarter. Further, its return-on-equity of 23% is the highest in the industry. Copa Holdings SA (CPA) follows up with an ROE of 22%. Its solid business model allows the company to operate with a profit margin of 6%. Overall, the stock has doubled in the past 12 months, and I believe the stock still has room to the upside.
The most important press release from Alaska Airlines after the quarterly earnings report was the revised monthly traffic for April. The company reported an outstanding 9.2% increase in traffic on a 9.9 increase in capacity compared to April 2012. The revenue passenger mile (RPM) increased from $1.98 billion in April 2012 to $2.16 billion in April 2013. The available seat miles (ASM) increased from 2.27 billion to $2.49 billion for the same period.
On a year-to-date basis, Alaska Airlines has increased the RPM by 9.4% from $7.62 billion in 2012 to $8.34 billion in 2013.
The company has seen substantial growth this year, and I believe further growth can be expected. The company has announced the inauguration of new routes. On March 29th, 2013, the company announced a daily flight between San Diego and Boston. On April 4th, 2013, the company announced a twice-daily service between Seattle, which acts as the company main hub), and Salt Lake City. Last week, the company announced the expansion of its service via two daily routes: 1. Portland-Atlanta. 2: Portland-Dallas. Both services may take a significant market share from American Airlines and Delta Air Lines respectively.
The most recent monthly traffic report and the announcement of the new routes should bring investors' mind at ease since the company is showing a strong shareholder-oriented business model. I believe the company should observe a significant growth in 2013, and it should provide investors with capital appreciation. Overall, Alaska Airlines may be considered for a long position to gain exposure to the airline industry.