Alaska Airlines
(
ALK
) will announce fourth quarter and full year 2012 earnings
Thursday, January 24. The carrier posted impressive growth in
revenues and earnings in the first three quarters of 2012 on higher
passenger traffic. Revenues increased 7.7% y-o-y to $3.5 billion
and net income increased 50% y-o-y to $272 million in the nine
months ended September 30, 2012.
In the fourth quarter, Alaska continued to raise its flying
capacity by adding new routes and raising frequency on certain
existing routes. As a result, passenger traffic for the carrier
continued to rise. If yield levels do not fall, which is likely as
passenger fares were stable, then we will see impressive top line
growth in the fourth quarter. Earnings growth is also highly likely
as there were no major hikes in prices of jet fuel, which is the
single largest cost head for airlines.
We currently have
a stock price estimate of $42.75 for Alaska
Airlines
, approximately 10% below its current market price.
See our complete analysis of Alaska here
Capacity Redeployment And Addition Of New Routes
Alaska started flights from its hubs on the west coast to
vacation destinations in Hawaii in November. It started flights on
Portland-Kauai, Bellingham-Maui and Anchorage-Kona routes.
Every year before the onset of peak winters, the carrier shifts
a certain portion of its capacity from the Pacific northwest and
the state of Alaska to these routes. During winters in the state of
Alaska and Pacific northwest, the cost of operations rose
significantly due to additional expenditure on airplane de-icing,
frequent flight cancellations and accommodation costs of displaced
passengers. In effect, these flights from the west coast to Hawaii
help the carrier reduce the impact from severe northwest winters on
its business.
Alaska Airlines also started service between Orlando and San
Diego in October. Overall, the flying capacity of the carrier
increased in high single-digits in the fourth quarter of 2012,
compared to the year-ago period. As a result, passenger traffic
increased around 9% y-o-y for the carrier in the fourth quarter,
and will contribute towards revenue and earning growth.
Minimal Impact From Sandy
Additionally, the impact from superstorm Sandy on fourth quarter
earnings of Alaska will be minimal since the operations of the
carrier are focused on north-south service on the west coast, the
state of Alaska and flights between west coast and Hawaii. Thus,
the carrier gets a small portion of its total passenger traffic
from northeast United States where the storm struck.
Order For 50 Boeing 737 Aircraft
In October, Alaska Airlines also placed the largest aircraft
order in its history. It ordered 50 Boeing 737s (13 Boeing 737ER
and 37 Boeing 737MAX) equivalent to around a third of its current
fleet size. Deliveries for this order will range from 2015 through
2022. These new aircraft will enable the carrier to continue to
expand its capacity over the coming years and also replace aging
aircraft in its fleet to save on fuel and maintenance costs.
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