Alaska Airlines
(
ALK
) recently entered into a frequent flier and code share agreement
with Mexico-based airline Aeromexico. The agreement will allow
Alaska to occupy a larger share of the fast-growing U.S.-Mexico air
travel market which will add to its revenue growth. This
partnership is significant for Alaska as growth in the domestic
U.S. market, where it operates the majority of its flights, is
moderate.
We currently have
a stock price estimate of $42.75 for Alaska
, approximately 5% below its current market price.
See our complete analysis of Alaska here
Aeromexico agreement to add to Alaska's revenue
growth
1) Reciprocal frequent flier program
Under the Alaska-Aeromexico agreement, passengers of both
airlines will be able to earn and burn miles on either airline. The
networks of Alaska and Aeromexico are highly complementary and the
program will significantly expand the offerings for passengers of
both airlines. While Alaska has a significant presence in the
western United States and the state of Alaska, Aeromexico flies to
45 cities in Mexico, 11 countries in Central and South America, and
a few other destinations.
In effect, for Alaska, the customers of Aeromexico will be
propelled to opt for its flights on routes falling outside of
Aeromexico's network and these customers will be able to add to
their ongoing mileage programs by flying on Alaska's flights. This
will increase passenger traffic for Alaska, adding to its revenue
growth.
2) Code share program
The agreement also features code sharing. Aeromexico's
AM
code will be placed on Alaska's flights between 20 city pairs,
including Alaska's all 8 destinations to Mexico starting from
Los Angeles, San Francisco, San Diego and San Jose. This will
allow Aeromexico to sell tickets on these flights. Additionally, as
the Aeromexico brand is highly recognized among travelers in
Mexico, it is anticipated that such a code sharing agreement will
allow Aeromexico to add substantial passenger traffic to
Alaska's flights on these routes.
All in all, the Alaska-Aeromexico agreement could increase
Alaska's share of the U.S.-international air travel market.
U.S.-Latin America markets offer high growth
potential
The partnership will also allow Alaska to occupy a larger chunk
of the passenger traffic between the U.S. and Mexico. This is
beneficial as the rate of growth in this market is higher than that
in the domestic U.S. market. Several U.S. airlines are taking steps
to take advantage of this fast-growing market. For
instance, Delta (
DAL
) and US Airways (
LCC
) are cutting their capacity on domestic U.S. routes but adding to
their capacity on the U.S.-Mexico and U.S.-Latin America
routes.
Alaska through this agreement will be able to increase its share
of this growing market and also raise the share of Mexico, a
fast-growing market, in its overall operations. Currently, the
airline receives around 2% of its mainline traffic from Mexico and
more than 85% from the domestic U.S. market.
Apart from Aeromexico, Alaska has frequent flier and code share
agreements with 12 other U.S. and international airlines, including
Delta, American Airlines, Air France and Qantas.
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