It's been almost a year since I've updated my thoughts on Alaska Air (ALK), and suffice it to say the world has changed a bit in the interim. Although Alaska Air still occupies an attractive niche with respect to costs and revenues (sandwiched between traditional network carriers and LCCs) and an attractive core franchise on the West Coast, COVID-19 has destroyed air travel demand and the road back to normal is a multiyear path with virtually no visibility. I like Alaska Air's cost structure, balance sheet, and fleet flexibility, and I think those attributes will serve the company well.
I'm modeling Alaska Air with a return to 2019-era revenue and EBITDAR in 2023, with a longer timeline to FCF "normalization" due to an extended delivery schedule for 737 MAX aircraft. Multiple valuation methodologies suggest that Alaska Air is meaningfully undervalued and priced for double-digit annualized returns from here, but this is an idea that will take time and patience and will be vulnerable to meaningful recurrences of COVID-19 in the coming quarters/years.
Read more here:
Buying Alaska Air On Eventual Normalization Isn't Easy But It May Be Smart
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