This Aviation Company Appears To Be A Better Pick Over United Airlines Stock

UAL: United Airlines Holdings logo
United Airlines Holdings

We believe that Alaska Air stock  (NYSE: ALK) is a better pick than its industry peer, United Airlines stock (NYSE: UAL), given its better prospects. Alaska Air is trading at 0.5x trailing revenues compared to 0.3x for United Airlines. Investors have assigned a higher multiple to ALK stock due to its superior profitability and better financial position, as discussed below.

If we look at stock returns, United Airlines, with -6% returns in the last twelve months, has fared better than Alaska Air, down 33%, and the broader S&P 500 index, down 13%. There is more to the comparison, and in the sections below, we discuss why we believe ALK is a better pick over UAL. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of United Airlines vs. Alaska AirWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

1. United Airlines’ Revenue Growth Is Better

  • Both companies posted strong sales growth over the last twelve months. Still, United Airlines’ revenue growth of 82% is much higher than 56% for Alaska Air.
  • Even if we look at a longer time frame, United Airlines fares better, with its sales falling from $43 billion in 2019 to $15 billion in 2020 before rebounding to $45 billion in 2022. Alaska Ajr saw its sales plunge to $3.6 billion in 2020, compared to $8.8 billion in 2019, and it surged to $9.6 billion in 2022.
  • The rise in revenues for both airlines over the recent years can be attributed to a rebound in air travel demand, with passenger traffic and ticket yield rising meaningfully in the last few years.
  • For perspective, United Airlines’ revenue passenger miles surged 2.8x between 2020 and 2022, while ticket yield rose 21%. In comparison, Alaska Air’s passenger traffic rose 2.5x, and ticket yield grew 16% over the same period.
  • The demand for air travel is expected to remain high in the near term, boding well for both United Airlines and Alaska Air.
  • Our United Airlines Revenue Comparison and Alaska Air Revenue Comparison dashboards provide more insight into the companies’ sales.
  • Looking forward, Alaska Air’s revenue is expected to grow faster than United Airlines in the next three years. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of 5.4% for United Airlines and 10.6% for Alaska Air, based on Trefis Machine Learning analysis.
  • Note that we have different methodologies for companies that are negatively impacted by Covid and those that are not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.
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2. Alaska Air Is More Profitable And Has A Better Financial Position

  • United Airlines’ operating margin of 1.5% over the last twelve months is comparable with 2.0% for Alaska Air. Alaska Air’s operating margin has been superior to United Airlines’ in recent years.
  • United Airlines’ operating margin stood at 8.8% in 2019, before the pandemic, and it fell to -49% in 2020, before recovering to 1.5% in 2022. In comparison, Alaska Air’s operating margin was 13.2% in 2019, -47% in 2020, and 2.0% in 2022.
  • Alaska Air’s free cash flow margin of 14.7% is also higher than the 13.5% for United Airlines.
  • Our United Airlines Operating Income Comparison and Alaska Air Operating Income Comparison dashboards have more details.
  • Looking at financial risk, Alaska Air fares better, with its 126% debt as a percentage of equity lower than 230% for United Airlines, and its 32% cash as a percentage of assets is also higher than 24% for the latter, implying that Alaska Air has a better debt position, and has more cash cushion.

3. The Net of It All

  • We see that United Airlines has demonstrated better revenue growth and is trading at a comparatively lower valuation multiple. On the other hand, Alaska Air is more profitable and has a better debt and cash position.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Alaska Air is the better choice, despite it trading at a comparatively higher P/S multiple.
  • The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 16% for United Airlines over this period vs. a 49% expected return for Alaska Air stock, implying that investors are better off buying ALK over UAL, based on Trefis Machine Learning analysis – United Airlines vs. Alaska Air – which also provides more details on how we arrive at these numbers.

While ALK stock may outperform UAL, it is helpful to see how United Airlines’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for FedEx vs. Amkor.

With inflation rising and the Fed raising interest rates, among other factors, UAL stock has fallen 6% in the last twelve months. Can it drop more? See how low United Airlines stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Mar 2023
MTD [1]
YTD [1]
Total [2]
UAL Return -20% 10% -43%
ALK Return -20% -11% -57%
S&P 500 Return 0% 3% 77%
Trefis Multi-Strategy Portfolio -3% 4% 226%

[1] Month-to-date and year-to-date as of 3/27/2023
[2] Cumulative total returns since the end of 2016

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