Tuesday, February 10, 2015

Seeking Alpha: Alaska Air Thriving In More Crowded Skies

Alaska Air Group (NYSE:ALK) was supposed to get walloped in 2014, as Delta Air Lines (NYSE:DAL) aggressively expanded its Seattle-based operations, pressuring revenue and margins for the smaller regional carrier that relies upon Seattle as a major hub. As it happened, though, Alaska Air had a pretty good year from a revenue, margin, and stock performance perspective as careful cost management, revenue enhancement, and competitive efforts paid off.

It's tough for me to call Alaska Air a great bargain today. I think it is an exceptionally well-run airline and I like the prospects for higher payouts as the company returns surplus cash to shareholders. While the shares do seem undervalued on the basis of next year's projected EBITDAR, it takes an averaged double-digit FCF margin over the next decade to support a low-to-mid $70's fair value by discounted cash flow and that's more aggressive than I'm comfortable with from an airline. That said, investors don't seem to often buy or sell airlines on the basis of long-term cash flow, so more aggressive investors may still find a good trading opportunity here.

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Alaska Air Thriving In More Crowded Skies

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