Alaska Air Group, Inc. (ALK), JetBlue Airways Corporation (JBLU): Prepare to Benefit From a Sell-Off in the Airlines

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Shares of a few mid-sized passenger airlines have tumbled to various degrees over the past couple of months, declining from peaks reached earlier this year. I believe that the fundamentals for these point-to-point or regional carriers have not changed dramatically, particularly for the long haul. The current operating environment remains favorable, with jet-fuel prices having edged down a bit. It appears that overall market jitters can be blamed for the sell-offs. Thus, current valuations may well represent buying opportunities. Here’s a more in-depth look at the stocks under pressure.

Alaska Air Group, Inc. (NYSE:ALK) still a top airline selection after flying into turbulence

Alaska Air Group, Inc. (NYSE:ALK)

Alaska Air Group, Inc. (NYSE:ALK), a Seattle-based carrier, is not only expanding capacity somewhat aggressively, it also is keeping unit costs contained and building its fleet for the long term. Along with boosting the number of Hawaiian routes, it is also adding service out of San Diego. Alaska Air Group, Inc. (NYSE:ALK) has about 68 aircraft on firm order. Overall, it seems well positioned for continued market share gains and profit increases over the long term, should the environment cooperate.

Where Alaska Air Group, Inc. (NYSE:ALK) faces a bit of a challenge is that it is up against heightened competition on California-to-Hawaii routes and long-haul Alaska Air Group, Inc. (NYSE:ALK)-based departures, while launching start-up routes, as well. All of this adds up to airfare pressure and load factor (occupancy) declines to a modest extent.

Alaska Air Group, Inc. (NYSE:ALK) remains on pace for a strong earnings gain this year, on increased flying and stable expenses, though the economy and fuel price fluctuations are always factors. As for its three- to five-year prospects, they appear intact and the company should expand at a steady clip over that time. I recommend purchasing Alaska Air Group, Inc. (NYSE:ALK) shares at their currently subdued price. They are trading at a forward P/E ratio of 8.3x based on 2013 share earnings of $5.40.

JetBlue Airways Corporation (NASDAQ:JBLU) shares retreat, but growth strategy still taking hold

Like Alaska, JetBlue Airways Corporation (NASDAQ:JBLU) plans to expand seating capacity around 7.5% this year, with new service to small- and mid-sized cities. It also plans increased frequency on existing routes, supported by additions to the aircraft fleet. In fact, plans are for 13 new aircraft this year (three Airbus A320s, six Embraer SA (ADR) (NYSE:ERJ) 190s, and four Airbus 321s), bringing the total to about 140.

JetBlue Airways Corporation (NASDAQ:JBLU)’s formidable build-out of its network should continue to be facilitated by operating conditions. In its favor, demand on newly-launched business (higher-fare) routes has been on the rise, allowing for overall slight improvements in yields. Be aware that new service often takes some time to ramp up to profitability. In all, I expect JetBlue Airways Corporation (NASDAQ:JBLU) to perform well over the heavy air-travel June and September quarters, given no severe operating climate changes.

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