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

Strong performance for Southwest

Southwest Airlines Co. (NYSE:LUV) looks to be finding strength in voids like St. Louis and other smaller markets, but less immediate success in larger, more competitive cities like Atlanta, Newark, N.J. and even Chicago. Houston continues to be an exception to the large market trend, with some of the strongest new markets along with strong marginal revenue performance in the fleet initiatives.

On an overall note, Southwest Airlines Co. (NYSE:LUV) remains a top pick in the sector. Second-half 2013 earnings should begin to reveal the benefits of a myriad of fleet/network initiatives well underway at Southwest. With market expectations relatively muted, Southwest could positively surprise, despite coming up short of ambitious 2013 ROIC goals set last December.

The initial look at the 4Q 2012 results from key fleet initiatives points to better marginal revenue performance than expected, which in combination with a step-up in network reallocation around Atlanta could drive EPS beats for the company in the second half of 2013 and into 2014.

Final word

The analyst note tells us that venturing into new markets may not be a positive for the company’s performance every time. A prime example is of Alaska Air Group, Inc. (NYSE:ALK). The carrier might harm its margins if it ventures into markets that give it lesser premiums than the Hawaiian market. Southwest Airlines Co. (NYSE:LUV) remains the best pick given the expected improvement in its margins.

The article New Markets: A Positive or a Negative for the Airlines? originally appeared on Fool.com and is written by Zain Abbas.

Zain Abbas has no position in any stocks mentioned. The Motley Fool recommends Southwest Airlines. Zain is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.