Airline carriers have seen their price-per-share value increase so far this year. iShares DJ Transportation Average (IYT) has rallied 14% while the S&P 500 has rallied 9%. Further, regional airlines have outperformed major airlines. Among the small companies, Alaska Airlines (ALK), a regional carrier that has received little attention, has rallied 37% YTD, and its stock is still cheap from a fundamental analysis point of view. It is trading with a P/E of 13.49, and a forward P/E of 9.39. Recent press releases and traffic reports suggest that the company may still offer potential for capital appreciation. The following lines will discuss why I believe a long position should be considered.
On April 4th, 2013, the company inaugurated a twice-a-day daily service between the cities of Seattle and Salt Lake City. The new route provides customers in Salt Lake City a non-stop flight to Seattle suitable for leisure or business purposes. Seattle also provides direct access to the British Columbia area. According to the company, the flights will be operated using Boeing 737 Next Generation aircraft.
On March 29, 2013, the company inaugurated daily service between the cities of San Diego and Boston. This route also provides opportunity for leisure and business on both ends. Alaska Airlines now offers 171 flights a week from San Diego to "12 cities from Hawaii to Mexico to the East Coast." The route will also be operated using Boeing 737 Next Generation aircraft.
March Traffic Report
Last week, Delta Air Lines (DAL) released its March monthly traffic report. A worse-than-expected performance from the major airline put pressure on other airlines' price-per-share. Alaska Airlines declined by 7%, Southwest Airlines (LUV) declined by 5%, United Continental Holdings (UAL) declined by 9% over the last week. However, two days after the release of the Delta Air Lines' report, Alaska Airlines released its March monthly traffic report.
An in-depth comparison between the reports from Delta Air Lines and Alaska Airlines may be found here. In brief, Alaska Airlines increased its revenue passenger mile (RPM) by 9% for the first quarter of 2013 on a quarter-over-quarter basis. Further, the company increased its RPM for the March period, from $2.06 billion in 2012 to $2.27 billion in 2013, representing a 10.1% increase.
On February 27th, 2013, Alaska Airlines announced the distribution of $88 million in bonuses to its employees for exceeding the company's 2012 operational and financial goals. The bonus accounts for 8% of annual salary per employee. This gesture serves as motivation for employees to continue achieving excellence in customer satisfaction. In addition, it provides investors with confidence about the company's solid business model.
Moreover, on February 19th, 2013, Alaska Airlines was named the No. 1 on-time major carrier in North America by FlightStats.com for the third year in a row. The company's average on-time rate for 2012 was 87.26%, while the average on-time performance was 79.62. Since travelers always consider on-time rates, Alaska Airlines should see an increase in its passenger load.
In brief, Alaska Airlines is, from a fundamental analysis point of view, an undervalued company by trading with a P/E of 13.49. The potential for capital appreciation due to a solid business model is excellent. The company has inaugurated two new routes within a week. It reported a substantially better performance in its March traffic report compared to other major airlines like Delta Air Lines. The company was named the No. 1 on-time major carrier in North America according to FlightStats.com, and due to a better-than-expected performance in 2012, employees are enjoying a hefty $88 million bonus. For these reasons, I believe that Alaska Airlines should be considered as an investment for the long markets.