Alaska's Results Will Get A Tailwind From Higher Passenger Traffic

Apr.24.13 | About: Alaska Air (ALK)

Alaska Air Group (NYSE:ALK) will announce its first-quarter 2013 earnings on Thursday, April 25. The carrier is coming off a good last year in which it posted nearly 30% year-over-year growth in profits on higher passenger traffic.

In the first quarter of 2013, Alaska continued to raise its flying capacity by increasing the frequency of some of its existing routes. As a result, its passenger traffic increased significantly. If the carrier’s yield levels do not fall, which is likely as passenger fares were stable, we expect to see strong growth in its top line. Additionally, the carrier’s profits will likely not be impacted by fuel costs as crude oil prices did not see any major spikes during the quarter.

We currently have a stock price estimate of $54.20 for Alaska, around 5% below its current market price.

Higher Passenger Traffic and an Expanded Code Share Agreement With American

Alaska Airlines raised its flying capacity by 8.7% y-o-y in the first quarter. As a result, its passenger traffic grew by 9% year over year. This will drive growth in its passenger revenues.

Additionally, an expanded code share agreement with American Airlines that was signed in February earlier this year will add to the revenue growth generated from higher passenger traffic. With the expanded code share agreement, Alaska has placed its flying code on 19 domestic routes served by American Airlines. Alaska’s frequent flier Mileage customers can now earn and burn their miles on these routes.

American Airlines has also placed its code on 22 routes, including West coast to Hawaii, and Pacific Northwest and San Diego to Boston and Orlando, served by Alaska. American’s frequent flier AAdvantage customers can now also earn and burn their miles on these routes which are served by Alaska. In all, for Alaska, the revenue share from its customers who travel on American flights and additional traffic generated by American customers who travel on its flights will help grow its revenues in the first quarter.

Disclosure: No positions.