Alaska Air Shares Catch Cold

The carrier was an industry leader throughout 2009, but it missed earnings estimates recently, and its lost 12% of their value between their Thursday opening price and Friday's close.
By Ted Reed ,

SEATTLE (

TheStreet

) --

Alaska Air

(ALK) - Get Report

came back to earth last week, leaving the market wary on the future direction of its shares.

The carrier was an industry leader throughout 2009, but it missed estimates when it reported earnings Thursday, and its shares tumbled, losing 12% of their value between their Thursday opening price and Friday's close. At midday Monday, shares were trading at $31.71, up 37 cents.

Following Thursday's earnings report, Barclays Capital analyst Gary Chase said he sees "better relative upside potential elsewhere in our universe." While Alaska's revenue held up better than most peers' during 2009, Chase suggested relative gains could come more slowly this year.

By contrast, JPMorgan analyst Jamie Baker said he "would look to exploit any Q4-related correction in share price, given the continued potential for upward consensus revisions and current peer-leading valuation."

In the first quarter, Chase expects a passenger revenue per available seat mile gain of about 6%, "in the context of double-digit improvement for the industry at large." For instance,

US Airways

(LCC)

has said it anticipates double digit RASM increases in each month of the current year, which is one reason why the carrier has been among the winners following fourth quarter earnings results. Its shares have gained nearly 10% since Thursday morning.

Meanwhile, analyst Helane Becker of Jesup & Lamont maintains a hold on Alaska. Becker estimates first-quarter earnings of 4 cents, compared with a loss of 70 cents a year earlier. Analysts surveyed by Thomson Reuters estimate a first-quarter loss of 36 cents.

During 2009, Alaska led the industry with a 12.6% gain in operating margin, and its shares rose 18%, second best among major airlines after

Southwest

(LUV) - Get Report

. So expectations were high for the quarter. In fact, on the morning of the earnings release,

The Wall Street Journal

published a complimentary story that began: "Bigger is supposed to be better in the airline business. But being small has been a boon to Alaska."

But Alaska earned just 12 cents a share, compared with an estimate of 32 cents. During the quarter, cost per available seat mile excluding fuel and special items rose 9.4%, while passenger revenue per available seat mile declined 2.8%. On an earnings conference call, CFO Glenn Johnson focused on the CASM increase, noting: "We're going to turn this trend around. We know our future is dependent on being able to offer low fares, and to do this we have to have low costs."

He said reductions in management headcount and real estate costs are likely, and the carrier will seek improved productivity. While the PRASM declined was relatively modest, Johnson acknowledged: "It's possible our improvement in 2010 will be less than others."

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

.

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