Seeking Alpha
Long/short equity, momentum, portfolio strategy
Profile| Send Message|
( followers)  

Most of the airline companies have outperformed the S&P 500 index this year. Travelers seem to prefer regional airlines rather than major carriers for domestic flights. As an example, Alaska Air Group (NYSE:ALK) saw its quarterly revenue passenger traffic increased for 2013 according to its most recent passenger traffic report. As Alaska Air is due to release its earnings report on April 25, I believe the carrier will surpass the analysts' expectations for the following reasons.

Recalling from a previous article, Alaska Air Group increased its revenue passenger mile (RPM) by 9% on a quarter-over-quarter basis from $5.6 billion in 2012 to $6.2 billion in 2013. To put this in perspective, Delta Air Lines (NYSE:DAL) reported a decline in its RPM by 0.6% over the same period on its March monthly traffic report. However, Delta Air Lines observed a net profit of $85 million, or $0.10 per diluted share according to its most recent quarter earnings report released on April 23. Furthermore, Delta generated $1.1 billion of operating cash flow and $457 million in free cash flow. What's more is that the revised RPM for the first quarter rose 1.4%, a +2% difference from its monthly traffic report. Based on this fact, a revised RPM for Alaska Air may further hike its 9% increment.

On the other hand, Alaska Air Group has taken market share from major airlines such as Delta Air Lines. Delta reported a regional RPM decrease of 6.8% on a year-over-year basis for the first quarter of 2013. We will see if Alaska has been able to grab a slice of those passengers that have not chosen Delta as their carrier, which I think it has due to its solid business model.

Several announcements have provided me with confidence about the company's business model. The carrier was awarded with the On-time performance award for the third year in a row. The company has recently inaugurated two new routes San Diego-Boston, and Seattle-Salt Lake City. Lastly, the company is upgrading its Boeing 737-800, -900, and -900ER aircraft with new seats and power outlets.

Finally, the cost of operation should not increase significantly because there have been no major spikes in oil prices for the last two quarters. In addition, there have been no re-negotiations with unions regarding employees' salaries reviews.

Conclusion

These hints suggest that the company has an exceptional future because the revenue passenger mile has increased significantly during the first quarter of 2013, and its costs of operation are expected to remain stable. However, we will wait until its earnings report has been released to determine if this has truly been an outstanding quarter for the carrier. I expect it should be because some data might indicate that the carrier is taking a large market share previously monopolized by major carriers.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Reasons To Believe Alaska Air Group Had An Outstanding Beginning Of The Year