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Alaska Air Group Dips to 52-Week Low on Multiple Headwinds

Zacks Equity Research

Shares of Alaska Air Group, Inc. ALK slipped to a 52-week low of $53.39 during the trading session on Mar 25 before retracing a bit to close at $53.60. Moreover, the stock has lost 12.8% in a year’s time.



 

Reasons Behind the Stock Price Decline

Alaska Air Group is likely to witness sluggish unit revenue growth in the first quarter of 2019. At an investor update in early March, the carrier trimmed its current-quarter revenue per available seat mile (RASM: a key unit revenue measure) view due to weak pricing at the last-minute bookings, primarily on transcontinental flights from California. The airline now anticipates the same to inch up in the 1-2% range. The previous forecast saw an increase in the 2.5-4.5% band. Inclement weather conditions in February causing a slowdown in bookings also added to the bleak projection.

Additionally, this Seattle, WA-based carrier has been struggling with high operating expenses for quite some time now. Last year, operating expenses rose 14% year over year, primarily due to a 24.7% escalation in fuel price (economic). Although fuel prices have now moderated, there seems to be little respite to the carrier. Non-fuel unit costs are estimated to augment roughly 4.5-5% year over year in the first quarter due to additional costs related to aircraft maintenance among other factors. These high costs in turn, are likely to hamper the company’s bottom line in the first quarter.

Further adding to the woes are the company’s capacity overexpansion issues. Notably, load factor (% of seats filled by passengers) contracted 60 basis points to 83.7% in 2018 as capacity expansion (5.3%) outpaced traffic growth (4.5%). Successive decline in load factor, a key measure of efficiency, does not bode well for the company as it implies inadequate capacity utilization.

Surrounded by these negatives, the Zacks Consensus Estimate for the company’s current-quarter earnings has been revised 90% downward in the last 60 days.

Zacks Rank & Key Picks

Alaska Air Group carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are Azul AZUL, SkyWest, Inc. SKYW and Swire Pacific Ltd. SWRAY, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Azul and Swire Pacific have rallied more than 67% and 12%, respectively, in the past six months. Meanwhile, the SkyWest stock flaunts an impressive earnings history, having outperformed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 16.9%.

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