Which Airline Stock Is Likely To Take-off First: Alaska Air Or JetBlue?

The stocks of Alaska Air Group (NYSE: ALK) and JetBlue Airways (NASDAQ: JBLU) have dropped nearly 60% since early February after the WHO declared the coronavirus outbreak a global health emergency. The airline industry has been worst affected by the ongoing pandemic as travel restrictions, and social distancing measures require people to stay indoors and avoid crowded spaces. JetBlue and Alaska Air Group have reduced seating capacity by more than 80% until June, with sizable cuts expected to remain in place for the full year. While JetBlue and Alaska Air have a comparable fleet size, available seat miles (capacity), occupancy rate, and passenger yield (average fare), Trefis expects Alaska Air Group to fare better post-crisis supported by its higher share of domestic operations and lower near-term debt obligations.

Our conclusion is based on our detailed dashboard analysis, Is Alaska Air Group Expensive Or Cheap After A -56.6% Move vs. JetBlue Airways? wherein we compare trends in key metrics for the two airline companies over the years to determine their relative valuations under the current circumstances. We summarize parts of this analysis below.

Alaska Air to outperform JetBlue, ironically, due to its larger focus on the domestic market

JetBlue and Alaska Air Group’s P/E ratio based on 2019 earnings have declined at a similar rate from over 10x in 2019 to 5x currently. This is largely attributable to JetBlue and Alaska Air’s comparable operational parameters. In 2019, JetBlue and Alaska Air reported 64 billion and 67 billion available seat miles, respectively. Moreover, both airlines fly across 100 destinations with nearly 300+ aircraft at a similar occupancy rate and passenger yield.

In 2019, the share of Latin America & Caribbean region of JetBlue’s total capacity stood at 31% while Alaska Air Group’s exposure to Latin America was 17% (more specifically, the share of Hawaii, Costa Rica, and Mexico was 17% of total capacity). We expect the recovery in international travel to come at a much slower rate than the recovery in domestic travel. Because of this, we believe that Alaska Air Group’s strong domestic presence will support a quicker top-line recovery driven by a higher occupancy rate as the containment efforts of the coronavirus pandemic find success and travel restrictions are lifted.

Recently, the U.S. treasury allotted aid to all airline carriers, with JetBlue and Alaska Air Group receiving $936 million and $992 million, respectively, to cover employee costs. However, with the coronavirus pandemic likely affect travel demand for the full year, the first-quarter results (for the period ending March) early next month would confirm both companies’ operational and capital allocation strategy to tackle further deterioration in demand.

But How Long Will Airlines’ Stock Remain Under Pressure?

• The expected timeline for recovery in global economic conditions, and in Airlines stocks, hinge on the broader containment of the coronavirus spread and the availability of a vaccine. Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.
• We do believe these trends are likely to reverse in later quarters of 2020, and as the Coronavirus crisis is tamed during late Q2, higher revenue and earnings expectations will replace the dire scenarios that are easily imagined during difficult times
• Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. It complements our analyses of the coronavirus outbreak’s impact on a diverse set of JetBlue’s multinational peers, including American Airlines and Delta Airlines. The complete set of coronavirus impact and timing analyses is available here.
• With the government aid likely to cover three months of employee expenditure for JetBlue and Alaska Air Group, we believe that JetBlue and Alaska Air Group stock at current levels provides a buying opportunity for investors willing to be patient.

While Alaska Air appears to be the better bet over JetBlue in the near term, which airline stock stands a better chance between JetBlue and Southwest?

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams