Alaska Air Fighting Some Competitive Headwinds

I described myself as “cautiously bullish” on Alaska Air (NYSE:ALK) earlier this year, as I was concerned that the generally positive long-term outlook for this well-run airline could be overshadowed by near-term cost/synergy and competitive capacity worries, not to mention overall late-cycle weakness in airlines. Shares have lost a little ground since then, more or less keeping pace with Delta Air Lines (NYSE:DAL) and bracketed by Southwest (NYSE:LUV) and JetBlue (NASDAQ:JBLU) on the weaker end and United (NYSE:UAL) on the better-performing end.

My basic outlook on Alaska Air really hasn’t changed that much. Higher labor costs and fuel costs are a drag on results, but management seems to be switching back to a network optimization footing, and history suggests that will generate some positive results for shareholders. I’ve been concerned for a little while that a prolonged stretch of good behavior from airlines would eventually end, and I think that may be happening now with capacity growth along the West Coast. Even so, I think low-to-mid single digit growth from Alaska Air can support a fair value above $70 and double-digit total annualized returns from here.

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Alaska Air Fighting Some Competitive Headwinds