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Executive summary:

  • Alaska Air Group (NYSE:ALK) outperformed competitors over the past five years.
  • The "pilot shortage" is insignificant and unlikely to hurt the company.
  • Consumer-friendly preflight and in-flight services will attract more customers.
  • Strong technicals and fundamentals make Alaska Air the leader of the regional airlines.

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Pilot Shortage

Recently, there has been a lot of talk about a "pilot shortage" that will supposedly make it extremely difficult for regional airlines to profit. The thought process behind the "pilot shortage fear" follows the bullet points below:

  • Regional airlines pay lower salaries than major airlines

  • The number of flight training hours required to qualify for an ATP certificate (Airline Transport Pilot certificate) recently increased from 250 hours to 1500 hours

  • Pilots in training will rack up a lot of personal debt because of the increased expenses associated with the increased training requirement. Few pilots will be able to pay off their debt with a low regional airline salary. Therefore, all regional airline pilots in America are going to get soaked up by the higher paying major airlines. There will be no pilots left to work for regional airlines and, therefore, the company will not be able to offer any flights.

Matthew C. Klein, in a recent Bloomberg article wrote the following:

"According to the Airline Pilots Association, there are thousands of U.S. pilots who are either furloughed or unemployed, while thousands more have switched to foreign carriers that offer higher pay. According to the FAA, both the number of active certificates for airline pilots and the number of U.S. airline passengers have been little changed during the past five years -- not exactly what you would expect if there were a real shortage of workers."

The lone fact that there are thousands of unemployed or furloughed U.S. pilots disproves the "pilot shortage" qualms. In fact, a pilot surplus exists.

Consumer-Friendly Preflight and In-Flight Services

Alaska Air maintains a stronger history of on time takeoffs and landings than other airlines. In 2010 and 2011, it won the FlightStats On-Time Performance Service Award.

According to the Research and Innovative Technology Administration (RITA), 87.56% of ALK's flights were on time in 2010. The industry average was only 79.79%. During 2011 the numbers were similar: 88.2% of ALK's flights were on time, while the industry average was only 79.62%. Alaska Airlines has been beating the industry in this regard since 2007.

Alaska Air does its best to lift the boredom off of its customers. During flights, passengers have access to their own digEplayer, a device similar to an iPad, that they can watch tv and movies on. Users can also listen to music and access information about their destination with the players.

One of Alaska's unique services that sets it apart from its competitors is the great support that it provides for pets. Two years ago, Alaska Air become partners with Banfield Pet Hospital. The two companies work together to make it easier and safer to travel with pets. ALK was deemed most pet-friendly airline in 2010.

Strong Fundamentals

Below, I have created a table highlighting the noteworthy fundamentals of the four largest regional airlines by market cap (Alaska Air is the fifth largest regional airline).

ALK

Ryanair (NASDAQ:RYAAY)

Southwest (NYSE:LUV)

Lan (NYSE:LFL)

Copa (NYSE:CPA)

Forward P/E

10.82

17.33

13.40

16.69

11.10

Long Term Debt/Equity

0.37

.79

.34

0

.48

PEG

.87

8.13

.83

N/A

.61

Profit Margin

9.90%

11.40%

4.30%

-2.20%

16.40%

EPS Next Year

11.03%

33.35%

14.08%

470.80%

11.57%

Strong Technicals

Technical analysis of Alaska Air on a daily chart suggests that a new uptrend has begun and now is a good time to enter into long positions.

The Parabolic SAR, a momentum indicator, recently dropped below the share price, signifying a new uptrend. Also, the stock has recovered nicely from a brief dip under the SMA 50 earlier in February. A second momentum indicator, the MACD, just crossed into positive territory signifying a new uptrend. Better yet, the SMA 50 and price are above the SMA 200. The RSI, which measures whether a security is overbought or not, indicates that Alaska Air is not overbought.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: Lionfin Capital is a group of investors.

Source: Pilot Shortage Not To Ground Alaska Air