Alaska Air Shares Gain, Unlike Shares in Every Other Airline
On Thursday, as shares in Southwest Airlines (LUV) - Get Reportfell 11% and shares in seven other airlines also fell, one airline broke the mold.
The outlier was Alaska Air (ALK) - Get Report . Shares rose 2% to close at $64.71, after the carrier beat earnings estimates and also told analysts that it would slow capacity growth this year -- just what Wall Street loves to hear, and just what Southwest CEO Gary Kelly wouldn't promise on Southwest's earnings call.
Also on the plus side, Alaska is seeing competitive capacity fall in its markets, partially because Delta has slowed its growth in Seattle, and is being bolstered by continuing strong corporate traffic in Seattle.
On Alaska's second-quarter earnings call on Thursday, Andrew Harrison, executive vice president, said Alaska's capacity grew 13% in the first quarter and 11% in the second quarter, but will rise 8% in the third quarter and just 3% in the fourth quarter.
As for the weak corporate bookings that have hurt other carriers, Harrison said "we're not materially different than the industry," but Alaska is nevertheless seeing relatively strong close in bookings.
"Our close-in bookings from biz volume are actually up," Harrison said, noting that "the introduction of basic fare into the marketplace" seems to have attracted more close-in bookings.
Cowen & Co. analyst Helane Becker wrote Thursday, "While management noted that the close-in yield weakness experienced by its peers for some time now made its way into Alaska's main West Coast markets this quarter, we remain constructive on the sequential unit revenue outlook for 2H16 as capacity growth meaningfully decelerates."
Also, Becker wrote, "While most U.S. airlines are seeing corporate revenue declines driven by yield weakness, Alaska continues to see growth in this segment {as} management noted that its Seattle hub and the technology sector were exhibiting particular strength. Additionally, corporate market share increased across all of the carrier's key markets.
"It is our view that following several quarters of corporate profit declines, companies are taking advantage of Alaska's value proposition vis-a-vis their network carrier peers," Becker wrote.
Meanwhile, CEO Brad Tilden said Alaska remains enthusiastic about the planned merger with Virgin America (VA) . "We continue to be super excited," he said. "This business is better than it was five or 10 years ago."
Tilden said Alaska flies to 35 states and 115 cities, but has "real strength in Alaska, Washington and Oregon.
"Virgin gives us California," he said.
Following the call, S&P Capital Global Market analyst Jim Corridore cut his target price to $80 from $95 but retained a buy rating. "We are positive on the upcoming acquisition of Virgin America, which we think will add size and scale, particularly on the West Coast," Corridore wrote.
During the call, Harrison revealed that the Federal Aviation Administration has approved Alaska's request to operate four new Newark routes, including Portland, Ore.; San Diego starting in November; San Jose, Calif., starting in March 2017; and a third daily Seattle flight starting in May 2017. Alaska will operate the routes with Boeing 737s.
One can only hope that Wall Street does not view four new flights to Newark as excessive capacity expansion.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.