Alaska Air Group Coverage Launch: $79.80 Trefis Price Estimate

May 18th, 2011 by Trefis Team
+9.49%
Upside
45.08
Market
49.36
Trefis
ALK: Alaska Air logo
ALK
Alaska Air

Alaska Air Group (NYSE:ALK) carries more than 23 million passengers per year to more than 90 destinations and provides freight and mail services, primarily within the state of Alaska and along the West Coast. The company was founded in 1985 and operates through its two main subsidiaries Alaska Airlines and Horizon Air. It competes with other airline majors like Delta Air Lines (NYSE:DAL), Southwest Airlines (NYSE:LUV), American Airlines (NYSE:AMR) and United Continental (NYSE:UAL).

We break Alaska Air down to 4 main business units which we detail below and set a $79.80 price estimate for Alaska Air, which is almost 20% ahead of market price.

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Launch of Coverage on Alaska Air Group – $79.80 Price Estimate

We’ve broken down our analysis of Alaska Air Group into 4 main business segments:

1. Alaska Airlines U.S.

2. Purchase Capacity, Cargo and Other Businesses

3. Horizon Air

4. Alaska Airlines International

Airline Industry at a Glance
Commercial aviation helps generate more than $730 billion in economic activity and supports almost 11 million U.S. jobs. As the U.S.  economy continues recovering from the recent economic downturn, the aviation sector will make a strong contribution towards revitalizing the job market. The U.S. airlines industry suffered a major setback in 2008 due to the recession that reduced both business and leisure air travel.

Since then, the U.S. economy has slowly recovered leading to an increase in demand for air travel in 2010 and consequently higher average fares. Traffic demand is highly correlated with economic growth and consumer spending accounts for nearly 70% of economic activity in the U.S. Based on expectations for the an economic recovery in the coming years, we believe this will lead to strong demand for airline travel.

Award Winning Customer Service

Alaska Air distinguishes itself from competitors by providing award winning customer service. Alaska Airlines was ranked “Highest in Customer Satisfaction among Traditional Network Carriers” from 2008-2010 by J.D. Power and Associates. Aviation Week Magazine called the company the “Top-Performing Airline” in 2010, and it was also recognized for having the “Best Loyalty Credit Card” program in North American in 2010 at the Frequent Traveler Awards. This has helped drive loyalty and return business during the downturn.

See our full analysis for Alaska Air Group.