Alaska Air Is America's Best Run Airline

Aug. 13, 2015 9:01 AM ETAlaska Air Group, Inc. (ALK)
Duncan Weinstein profile picture
Duncan Weinstein


  • Alaska has the best operating performance of the 7 largest American carriers so far this year.
  • The company has a fortress of a balance sheet, and owns 80% of its fleet free and clear.
  • Alaska owns some of the highest margins and returns on capital in the business.
  • Unlike legacy carriers, Alaska is actively growing, and management is disciplined and forward looking.

Like many airlines, Alaska Air (NYSE:ALK) just reported the best quarter in its history, thanks largely to low fuel prices. The company turns out margins and returns on capital that are consistently the best of the largest American carriers, while also owning the strongest balance sheet. To its credit, Alaska's management has consistently rewarded shareholders without leveraging, and while maintaining a long-term outlook on its business. Finally, Alaska's operational performance is the best of the major carriers, according to the Bureau of Transportation Statistics. At a P/E of 14.4 and a forward P/E of 12, Alaska is cheap both relative to the market as a whole and to other large non-legacy airlines.

Running A Strong Business

Alaska just reported its best quarter ever, with profit up 46% year over year. This was largely thanks to 34% reduction in fuel cost, pretty good for the industry, though not as good as American, which never hedges and recorded 38.5% fuel savings. These lower fuel costs allow Alaska and other airlines to add capacity and still make money with less revenue per flight. Alaska reported a 5.7% year-over-year decline in passenger revenue per average seat mile (PRASM), on 13% industry growth in the markets it serves. Despite the decline in unit revenue, pre-tax operating margin still increased 740 basis points, a testament to the impact of fuel. Alaska's fleet is also becoming about 2.5% more fuel efficient each year as older planes are retired. The company expects non-fuel costs to decline 0.5% this year, while other airlines like American are seeing a moderate growth in non-fuel cost, usually due to labor.

Of the new routes Alaska has launched in the past year, management says 70% are already profitable, and half would be profitable if jet fuel were $3 a gallon, approximately twice what is now. The company also reported

This article was written by

Duncan Weinstein profile picture
Duncan Weinstein is currently the financial writing intern at Stock Rover.

Disclosure: I am/we are long ALK, LUV, JBLU, VLRS. 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.

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