Alaska Airlines’ FY19 Results Will Mirror The Trends Reported By Which Of Its Peers?

by Trefis Team
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Alaska Airlines (NYSE: ALK) is slated to release its full-year 2019 results on Tuesday, January 28. The earnings season has been a mixed bag for the U.S. airline industry so far, with American Airlines and Southwest Airlines falling short of expectations even as JetBlue, United Airlines and Delta Air Lines reported stronger-than-expected results. So which of its competitors’ results is Alaska Airlines likely to have emulated?

Trefis details expectations from the airline company in an interactive dashboard, parts of which we highlight below. We believe that Alaska Airlines will report an earnings miss for FY19 despite churning out revenues that are in-line with consensus. We expect Alaska Airlines to report total revenues of $8.9 billion (vs. consensus estimate of $8.9 billion) primarily driven by the company’s passenger division. Also, earnings are likely to be around $6.30 (vs. consensus estimate of $6.36), growing by 9% (y-o-y) due to lower fuel costs. In 2019, while Southwest Airlines and American Airlines faced headwinds from the Boeing 737 MAX groundings, Alaska Airlines’ revenues continued to expand from stable capacity and rising airfares. We estimate Alaska Airlines’ valuation to be $70 a share – roughly 10% above its current price.

Trefis shines the spotlight on key assumptions and data for Alaska Airlines, and our hypothesis lays out one possible set of expectations. You can chime in with your expectations for Alaska Airlines’ FY19 earnings in our interactive dashboard.

 [1] Alaska Airlines’ Revenues expected to be in-line with the consensus

  • The company generates a bulk of its revenues from air ticket sales, which contribute nearly 85% of Passenger revenues.
  • Redemption of certain passenger loyalty rewards and other ancillary services such as baggage fees and on-board sales are also recognized as Passenger revenues.
  • In 2018, Passenger revenues observed growth of 4.5%, primarily due to growing capacity across regions.
  • In the last three quarters, Alaska’s available seat miles have increased by 1.5%, aircraft occupancy levels have remained relatively flat, and passenger yield has grown by 4%.
  • This has enabled Alaska’s passenger revenues to grow at a high single-digit rate in 2019.
  • However, growing passenger yield from rising airfares is expected to increase the company’s revenues by 7.1% to $8.9 billion for full-year 2019.

 [2] EPS expected to increase from $4.47 in 2018 to $6.30 in 2019, driven by lower fuel costs

  • After falling sharply in December 2018, crude oil prices have remained relatively stable at $60 a barrel in 2019.
  • As fuel expenses are nearly 20% of the operational costs for the company, lower fuel expenses have had a positive impact on the net income margin.
  • We expect the company’s EPS to grow by 40% to $6.30 for the full year 2019.
  • Our valuation for Alaska Airlines’ stock stands at $71 per share, driven by an EPS of $6.30 and a forward P/E multiple of 11.3

 

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