Alaska Air Group Stock Poised For Long-Term Gains?

ALK: Alaska Air logo
Alaska Air

The shares of Alaska Air Group (NYSE: ALK) have lost 8% in value over the past two weeks largely due to concerns of high operational costs from pent-up benchmark prices. Government aid supported payroll related expenses, even in the third quarter, shielding against the negative impact of the fourth wave of the pandemic. The company reported just $234 million operating cash outflow last year and generated $1 billion in H1 2021. Given the expectation of lower benchmark prices by EIA in the coming quarters and Alaska Air Group’s strong balance sheet, Trefis believes that the stock provides an opportunity for long-term gains.  We highlight the quarterly trends in revenues, earnings, stock price, and expectations for Q3 2021 in an interactive dashboard analysis, Alaska Air Group Earnings Preview.

How did Alaska Air Group perform in the second quarter?

In Q2, Alaska Air Group reported a 33% (y-o-y) contraction in net revenues and a 21% (y-o-y) reduction in capacity (available seat miles). The company reported $397 million of net income and $840 million of operating cash – assisting $527 million of capital spending and $363 million of debt retirements. On the operational side, the occupancy rate jumped to 77% propelled by strong domestic demand and efficient capacity utilization. While the third quarter results are impacted by the fourth wave of the pandemic, rising transportation demand in the coming quarters is expected to push travel and entertainment stocks higher.

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[Updated 06/08/2021] – Is There Near-Term Downside In Alaska Airlines Stock?

In recent months, progress in mass vaccination and growing passenger numbers at TSA checkpoints have been a boon for the airline industry. However, new coronavirus variants are triggering fears of more infection waves limiting international travel and tourism demand. The shares of Alaska Airlines (NYSE: ALK) have reached pre-Covid levels unlike American, United, and Delta Air Lines. This can be largely attributed to the company’s lower debt outstanding and higher operating margin. The U.S. government initiated a third phase of payroll support in the first quarter as huge salary costs could trigger involuntary furloughs. Notably, the PSP-3 requires airlines to suspend dividends and share repurchases until September 2022. According to the Trefis Machine Learning Engine, which identifies trends in the company’s historical stock price data, Alaska Airlines stock is likely to move 4.6% in the next one-month (twenty-one trading days) period after experiencing -6% drop in the past week (five trading days).

But how would these numbers change if you are interested in holding Alaska Airlines stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning Engine to test Alaska Airlines stock chances of a rise after a fall. You can test the chance of recovery over different time intervals of a quarter, month, or even just one day!

MACHINE LEARNING ENGINE – try it yourself:

IF ALK stock moved by -5% over 5 trading days, THEN over the next twenty-one trading days, ALK stock moves an average of 4.6 percent, which implies an excess return of 2.4 percent compared to the S&P 500.

There is 69% probability of a positive return over the next twenty-one trading days and 62% probability of a positive excess return.

Some Fun Scenarios, FAQs & Making Sense of Alaska Airlines Stock Movements:

Question 1: Is the average return for Alaska Airlines stock higher after a drop?


Consider two situations,

Case 1: Alaska Airlines stock drops by -5% or more in a week

Case 2: Alaska Airlines stock rises by 5% or more in a week

Is the average return for Alaska Airlines stock higher over the subsequent month after Case 1 or Case 2?

ALK stock fares better after Case 1, with an average return of 4.6% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 2.6% for Case 2.

In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.

Try the Trefis machine learning engine above to see for yourself how Alaska Airlines stock is likely to behave after any specific gain or loss over a period.

Question 2: Does patience pay?


If you buy and hold Alaska Airlines stock, the expectation is over time the near term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.

Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!

For ALK stock, the returns over the next N days after a -5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

Question 3: What about the average return after a rise if you wait for a while?


The average return after a rise is understandably lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks – although ALK stock appears to be an exception to this general observation.

ALK’s returns over the next N days after a 5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

It’s pretty powerful to test the trend for yourself for Alaska Airlines stock by changing the inputs in the charts above.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since 2016.

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