Alaska Air Group (NYSE:ALK) posted 8% year-over-year growth in its fourth quarter revenues on higher passenger traffic. However, earnings declined by 31% y-o-y to $0.61 per share due to fuel hedging losses. Excluding the impact of mark-to-market fuel hedging losses, earnings increased 37% y-o-y to $0.70 per share in the fourth quarter. 
For full year 2012, Alaska posted strong growth in both revenues and earnings driven by higher passenger traffic and passenger fares. Revenues increased 8% y-o-y to $4.6 billion and earnings increased 32% y-o-y to $4.40 per share. Additionally, the carrier lowered its debt-to-total capitalization ratio by 8 points in 2012, from 62%:38% at the end of 2011 to 54%:46% at the end of 2012.  This bodes well for its business as it reduces risk.
Higher passenger traffic
Alaska started services on 21 new routes in 2012, including routes from San Diego to Orlando, Portland to Lihue, Bellingham to Maui, and Anchorage to Kona in the fourth quarter. As a result, the carrier’s flying capacity increased 7.8% y-o-y in the fourth quarter. Coupled with a marginally higher load factor (percentage of occupied seats in a flight), passenger traffic for the carrier increased 8.7% y-o-y. 
Higher passenger traffic supported by steady passenger fares drove 8% y-o-y growth in Q4 revenues. 
For 2013, Alaska anticipates to raise flying capacity by 7.5% on a year-over-year basis. It will do so by increasing utilization of the existing aircraft in its fleet, as its total fleet size is projected to rise by merely 3 aircraft (from 172 to 175 aircraft) in 2013.  Nonetheless, higher capacity will promote growth in passenger traffic for the carrier.
Also, in 2012, Alaska placed an order for 50 new Boeing 737 aircraft, including 37 Boeing 737MAX, which are promised by Boeing (NYSE:BA) to be 15% more fuel-efficient than their previous versions. Alaska will take deliveries for this order starting from 2015 through 2022 and will use these new aircraft to replace aging ones in its fleet as well as to expand capacity. This will help the carrier save on fuel and maintenance costs and further promote growth in passenger traffic in the long term.
We currently have a stock price estimate of $42.75 for Alaska Air Group, approximately 10% below its current market price. We are in the process of incorporating fourth quarter earnings and will update our analysis shortly.Notes: