Alaska Airlines Stock Supported By Strong Fundamentals

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Alaska Air

The shares of Alaska Air Group (NYSE: ALK) observed another round of sell-off after WHO declared the Omicron mutation as a variant of concern and investors became wary of a decline in air travel demand. However, the passenger numbers at TSA checkpoints regained strength as infection numbers quickly ticked down earlier this month. Alaska Air Group incurred just $234 million operating cash burn in 2020 largely due to multiple grant arrangements by the government and a stringent cost curtailment plan. As domestic demand continues to drive strong passenger numbers, Trefis believes that Alaska Air Group’s revenues to observe 36% (y-o-y) growth in 2022. We highlight the historical trends in key revenue drivers of Alaska Air along with near-term projections in an interactive dashboard analysis.

How did Alaska Air Group perform in 2021?

In 2021, Alaska Air Group reported 30% contraction in operating revenues driven by a 21% reduction in capacity (available seat miles) and a 10% decline in load factor over 2019. However, pent-up demand pushed the top line to almost pre-pandemic levels in H2 2021. The company ended the year with $478 million of net income and $1 billion of operating cash. Notably, the company’s $1 billion of investment activities were assisted by a combination of cash on hand and yearly earnings. On the operational side, CASMex (representing operational expenses other than fuel per available seat mile) observed a 13% surge and passenger yield declined by 1% over 2019.

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Per Q4 2021 filings, the company expects Q1 2022 capacity to be down by just 10-13% over Q1 2019 and the passenger load factor to range between 71-74% – almost 10% below historical average numbers. With revenues expected to be down by 14-17% over pre-pandemic levels, Q1 2022 is likely to observe a similar performance sequentially. (related: Is JetBlue Airways Stock Poised For Strong Gains?)

Trends In Key Performance Metrics

A prudent capital investment plan, stable demand, and high passenger load factor assisted 7% growth in ASMs (capacity) from 62 billion in 2017 to 66.6 billion in 2019. Subsequently, the top line observed a similar 11% expansion from $7.9 billion in 2017 to $8.8 billion in 2019. After the acquisition of Virgin Airlines in 2016, the company followed a conservative strategy and repaid $2.5 billion of long-term debt by 2019 instead of aggressively repurchasing shares. We elaborate more in our earlier article, What If American Airlines Had Implemented Alaska Air’s Capital Allocation Strategy?

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Returns Feb 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 ALK Return 7% 12% -34%
 S&P 500 Return 2% -4% 105%
 Trefis MS Portfolio Return 2% -8% 264%

[1] Month-to-date and year-to-date as of 2/10/2022
[2] Cumulative total returns since the end of 2016

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