NEW YORK (TheStreet) -- It turns out that Seattle-Tacoma International Airport is in fact big enough for two airline hubs.
When Delta (DAL) launched its effort to build a Seattle hub in 2013, many including me thought hometown carrier Alaska Airlines (ALK) was in trouble. Intense competitive pressure from the best U.S. airline, engaged in trying to build a West Coast hub right on top of Alaska's principal hub, didn't seem to present a path to a highly successful outcome.
Rather, I guess I thought that Alaska would become the sort of airline that struggles along for years, as many predecessors have done, always the topic of merger talks, and at times -- when industry conditions turned bad -- the subject of stories such as "Can Alaska Air Survive With Oil at $200 a Barrel?" and "Will Alaska Turn to American (AAL) to Prevent Delta Takeover?"
Not to say those stories will never be written, but they seem far less likely than they once did.
In December 2013, at a time when Alaska was retaliating against Delta by announcing suspect buildups on competitive routes including some in Salt Lake City, Deutsche Bank analyst Mike Linenberg downgraded Alaska to sell from hold.
"The fact that Delta is roughly eight times the size of Alaska (i.e. $38 billion of revenue estimated for 2013 vs. Alaska's $5 billion) leads us to believe that Alaska will be disproportionately impacted," Linenberg wrote.
Yet Alaska has not only survived but prospered, reflecting the surge in overall industry performance, steadfast resistance to Delta, and now an apparent slowdown in Delta growth at SeaTac.
Alaska shares closed Monday up $1.57 to $66.22. Year to date, shares are up 11%. Adjusted for a stock split and dividends, Alaska shares closed Dec. 31, 2012, at $21.06 a share. They have more than tripled since then.
Delta has not done badly either. Its shares closed Monday up 94 cents to $42.97. Shares are down 13% this year, reflecting the various pressures on international carriers. Adjusted for dividends, Delta shares closed Dec. 31, 2012, at $11.67. They have more than tripled since then.
Last week, Credit Suisse analyst Julie Yate upgraded Alaska to outperform from neutral, while Wolfe Research analyst Hunter Keay raised estimates. (Linenberg now rates Alaska a hold.)
Yates listed four reasons for the upgrade.
First, "We are less worried about Alaska's issues in Seattle with the rate of capacity adds declining, and more worried about industry-wide fare compression," she wrote, noting that fares are shrinking markedly in markets where American, Spirit (SAVE) and Southwest (LUV) overlap rather than in Alaska markets.
Secondly, Yates wrote, "We expect Alaska to buy back up to 8% of its market cap in 2015, second only to Delta."
Also, "We see the least downside to Alaska consensus" (analysts surveyed by Thomson Reuters estimate Alaska second-quarter earnings of $1.61 a share) and additionally, "Alaska has the lowest level of labor inflation over the next several years relative to peers with recent long-term deals," Yates wrote.
Keay, a longtime Alaska backer, wrote that Alaska "was once the 'consensus sell' because of competitive pressures, but that 'trade' may need to be reversed."
Alaska's passenger revenue per available seat mile "has been consistently underperforming the industry since DAL began growing in Seattle, but the underperformance seems to be waning," Keay wrote. "Alaska's competitive headwinds are seemingly set to ease (while they worsen for most others), and that might mean the days of material revenue underperformance (and reasons to short the stock) are over."
Keay already has an outperform on Alaska shares. He raised his target price to $83 to $82, and raised his second-quarter earnings estimate to $1.61 a share and his full year estimate to $6.03. Consensus is $5.95 a share.