How Did Alaska Perform In Q2?

by Trefis Team
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ALK
Alaska Air Group
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Alaska Air Group (NYSE:ALK) has been struggling with profitability issues for some time now. However, things may have turned for the company in Q2, as it recorded a near $193 million profit this time around, despite escalating operating costs. While the figure does come in nearly 50% below what the airline reported in the same period last year, the reversal in the trend is definitely optimistic. We expect the earnings to consistently improve over the remainder of the year.

The company’s stock is trading at around $64, which given the way things are, seems relatively fair, and in line with our estimate. We have created an interactive dashboard elaborating on our valuation process and methodology. Please click on the link to adjust drivers and arrive at your own price estimate.

  • As mentioned previously, over the past few quarters, the company has been suffering from profitability issues. The reason for the fall in earnings is the bump in operating and fuel costs, both of which have jumped significantly in the recent past. While fuel costs, like in the case of most competitors, has taken out a big chunk of the margins, Alaska also saw its bottom line take a hit on higher wage and integration costs. That said, the company expects these costs to taper off through the remainder of the year, with the second half showing better results.
  • Another good news coming in from the quarter is the announcement that nearly 85% of the work needed to integrate Virgin into Alaska has now been completed. The completion of the integration, which is expected to be concluded in Q3, is something investors have been eagerly waiting for, for some time now. Many are of the opinion that the integration process was too slow and extremely distracting for the management, leading to hurt financials over the past few quarters. That said, management is eager to put this behind them, and focus on improving margins going forward. We hope to learn more about their plans over the coming weeks.
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