Alaska Air Group, Inc. (ALK) – New Markets: A Positive or a Negative for the Airlines?

Page 1 of 2

Lately, the airline sector has been flying and has seen 40% appreciation since the start of the year versus the S&P 500, which has risen only 15%. One of the keys to this growth has been the proactive approach of some carriers that have been investing into new markets. The performance of new markets is of particular interest for carriers that are demonstrating growth, such as Alaska Air Group, Inc. (NYSE:ALK) and JetBlue Airways Corporation (NASDAQ:JBLU), or re-allocating capacity into new markets like Southwest Airlines Co. (NYSE:LUV).

Alaska Air Group, Inc. (NYSE:ALK)

Let’s have a look into how these new markets are developing for those three carriers.

Executive summary

The conventional growth opportunities for Alaska Air Group, Inc. (NYSE:ALK) are off to a weaker start and some Hawaii markets are showing signs of softness, likely as a result of competitive capacity. For JetBlue Airways Corporation (NASDAQ:JBLU), Boston, Hartford, and San Juan continue to screen well. Finally, while Southwest Airlines Co. (NYSE:LUV)’s markets are generally developing inline with expectations, smaller cities look to be out-performing larger cities. Atlanta stands out as a weak start for new Southwest flying (separate from AirTran flying). However, Southwest is addressing this with code-share capability with AirTran and a revamped schedule toward the end of the year.

A bad deal for Alaska

In a note published by Barclays PLC (ADR) (NYSE:BCS), the analyst commented that with the ‘Hawaii void’ filled, Alaska Air Group, Inc. (NYSE:ALK)’s growth will revert to more conventional markets (connecting cities like Seattle and San Diego to other markets.) Those market opportunities would not generate the early relative RASM premiums that Hawaii markets had produced. (For those who don’t know, RASM is revenue per available seat mile and is considered a key metric when discussing revenue growth of airline sector.) Hence, the reversion to conventional growth would be more RASM and margin dilution than Alaska’s growth in past years.

Barclays has given a price target of $38, which is almost a 30% downside from the current price level of $52.

Revenue generation for JetBlue is just okay

JetBlue Airways Corporation (NASDAQ:JBLU)’s new markets in Boston and San Juan appear to be developing well, although San Juan is proving a bit less consistent than Boston. Where we have seen some weakness is in markets with notable competitive capacity pressures (Transcon, for example), and some recent New York to Florida markets that look to be slow in developing.

On an overall note, the carrier’s revenue generation is generally fine. However, the revenue performance has yet to result in relative earnings and margins that match the industry’s improvements. With 10% capital appreciation for the year (vs. S&P 15%), the stock has under-performed the market. However, consensus estimates show a 25% annual increase in earnings for the next five years, which bodes well for the stock.

Page 1 of 2

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!