Operational Clouds Have Opened Another Window At Alaska Air

Airlines in the U.S. have shown an uncommon level of discipline for the past decade, setting the stage for a nice boom period where most industry participants have been able to make some good money. Nothing that good lasts forever, though, and there are emerging signs that airlines are getting a little loose with capacity in the interests of competition.

With Alaska Air (ALK), there are concerns that go beyond that competitive industry backdrop. The integration of Virgin America (NASDAQ:VA) hasn't been completely smooth and it looks as though the company might be slipping a bit on much-vaunted metrics like cost control and customer experiences. All of that has led to a roughly one-third drop in the share price from its early 2017 peak and underperformance relative to some of its larger rivals.

I'm cautiously bullish on Alaska Air now. I'm bullish because I think modest growth can support a fair value in the $70s based upon both DCF and EBITDAR. I'm cautious because individual stocks don't often outperform when the entire sector goes into disfavor, and I think there could be some more bumps in the road as Virgin America is fully integrated and as rivals respond to the new, larger, more competitive Alaska Air.

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Operational Clouds Have Opened Another Window At Alaska Air