This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Wall Street Says 'Jump.' Airlines, Led by Alaska Air, Ask 'How High?'

Stocks in this article: ALK BAC DAL LCC SAVE

P/>SEATTLE ( TheStreet) -- Airlines, desperate to show investors that their business is viable, are being led by Alaska Airlines (ALK) toward investment respectability.

Last week, the carrier pulled out a copy of the Wall Street playbook and followed every rule. It raised bag fees and change fees. It signed a five-year pilot contract. It squeezed more money out of its credit card agreement with Bank of America (BAC). And it declared a dividend of 20 cents a share. This is all on top of the $250 million stock buyback program Alaska announced last summer.

"We wanted to be a good place to invest, not a good place to trade but a good place to invest," said CEO Brad Tilton during a jovial conference call on Friday, in which executives and analysts alike applauded the carrier's recent actions.

"We've been waiting for this," Hunter Keay, a senior analyst with Wolfe Research in New York, wrote Friday in a report on the new bag fees, in which he said: "Fee news alone is reason enough to get excited about the stock." During the investor call, Keay praised the carrier's series of investor-oriented actions. "Thanks for exhausting all of my questions for about two years," he said.

Cowen analyst Helane Becker wrote, "We have long hoped Alaska Air would add a dividend to its capital deployment plan, and it did today."

Airline analysts, it seems, are tired of being looked down on by analysts who follow more consistently reliable sectors.

"The fact that airlines are now competing on the basis of capital deployment strategies comes as an absolute shock to this particular grey-haired analyst and affords further evidence, in our view, that the industry has turned an important corner," wrote JPMorgan analyst Jamie Baker in a report issued Friday.

In recent years, Alaska shareholders have been well-rewarded for the airline's investor orientation. In 2010, shares rose 62%, prompting this story, headlined: "Why Wall Street Loves Alaska Airlines."

In the fourth quarter of 2010, Alaska produced a return on invested capital of 10.7% and CRT Capital Group analyst Mike Derchin wrote a report: "Believe It Or Not, An Airline That Earned Its Cost of Capital; Bravo!."

In 2011, Alaska shares gained 30%, leading all airlines. In 2012, the gain was a respectable 24%.

This year, Alaska shares are up 42%, trailing only Spirit (SAVE), up about 90% and Delta (DAL), up about 64%. Shares of Southwest (LUV), US Airways (LCC) and United (UAL) all have percentage gains in the 30s. The S&P 500 is up 18%.

Baker said Alaska has joined the parade of carriers responding to Wall Street concerns this year. "Delta announced its long-awaited capital deployment strategy in early May," Baker wrote. "Days later, Southwest, feeling the competitive heat, quadrupled the size of its dividend. Now it is Alaska's turn.

"We imagine the pressure on UAL to follow suit, and longer-term (on) New American, must be unrelenting at this juncture," he said.

On the Friday call, a single analyst sounded a slightly contrarian note after Chief Financial Officer Brandon Pederson declared that Alaska, more than any other airline, is interested in returning capital to shareholders. "I don't think you can look at any other company in our industry and see a company that can do more in that regard than we have,'' Pederson said.

When John Godyn of Morgan Stanley asked, "If your earnings didn't grow over the next three years and we just sort of had steady-state economics, do you think that you could increase the buyback and dividend from here?" Responded Pederson, "Our goal would be to increase earnings."

-- Written by Ted Reed in Charlotte, N.C.

>To contact the writer of this article, click here: Ted Reed

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs