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Profits From the Last Frontier

Investing in Alaska Air Group, Inc (NYSE: ALK)

Jimmy Mengel by Jimmy Mengel
February 6, 2023
in Analysis
0
Profits From the Last Frontier
  1. The Last Frontier
  2. Alaska Air Group (NYSE: ALK)
  3. Buy the Ticket, Take the Ride

Several years ago, when my children were just learning about geography, I was spinning around a globe and showing them different parts of the world. They were enamored.

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It wasn’t just in the typical way a globe makes everything look so close together. Or finding your actual home on the map. It was the fact that they had yet to hear of many of these places.

My son Hank asked if Bhutan was pronounced: “button.” My daughter Julia was delighted that Madagascar, a popular kids' movie at the time, was a real place you could visit!

I showered them with stories about Austria and Morocco; the former is part of my heritage, and the latter is where I spent my honeymoon. I've visited both, and some of my best memories are rooted in them.

So I came up with a wild idea…

“Kids, when you turn 10, you can pick anywhere in the world you’d like to go, and we’ll go. So start thinking about it now.”

They thought fast.

Julia, who is by far the more impulsive one, immediately shouted, “Paris!” She loves art and pastries and wanted to see the Mona Lisa and the Eiffel Tower. That choice did not surprise me one bit.

“Done deal,” I said.

On the other hand, Hank is far more methodical and took a few weeks to study the globe and research. Bleary-eyed, sipping coffee and making eggs for their breakfast before school one morning, Hank came up to me.

“Let’s go to Alaska,” he said, very matter-of-factly.

The Last Frontier

Alaska, eh?

I didn’t see that coming at all. I had pegged Hank as a Hawaii or South America kind of chap.

But I was impressed by his sense of adventure, and now he turned ten, and we totally went to Alaska!

It was amazing…

We flew into Anchorage, which left much to be desired, but my father, son, and I took the Alaskan railroad all the way to Denali State Park — one of the seven summits and the highest peak in North America.

Here’s a view from the trail:

Picture of Wonder Lake in Denali National Park
Wonder Lake, Denali National Park

We also managed to spend a couple of days in Talkeetna, which I highly recommend. It’s a small town of just a few hundred people – all extremely friendly and welcoming. Talkeetna is so small and quirky that it had a cat – Mayor Stubbs – as its mayor for over ten years. 

Hank and I took an ATV into the Alaskan wilderness to visit several friendly homesteaders that lived off the grid. They were expert fishermen, hunters, and carpenters who built their own remote homes far from society. Everyone remarked that there was no place they’d rather live and couldn’t imagine returning to their old day jobs as doctors, lawyers, and college professors.

Overall, Talkeetna was a delight and our favorite stop on the trip. Plus, it hosts a number of helicopter and small plane flights to the surrounding glaciers.

Speaking of flights, that’s really what I wanted to talk to you about today: investing in them.

Alaska Air Group, Inc (NYSE: ALK)

While researching flights for the trip, it occurred to me that Alaska Air Group, Inc. could be a very compelling stock.

As we all know, the coronavirus pandemic has continued to beat down airline stocks as flights have been grounded worldwide. Look no further than the hundreds of Southwest cancellations that ruined the Christmas holiday for thousands of people.

Alaska Air Group is well-regarded as a fundamentally stable company with a niche market it works within and plenty of interested travelers waiting in the wings as travel opens up even more over the next year.

It’s already happening: U.S. travel has rebounded almost to pre-pandemic levels. The problem has been staffing issues. Alaska Air, however, hired 8,000 employees last year and plans on hiring another 3,500 this year. They also sport one of the best hiring packages in the industry, with employees earning the largest performance bonus payout in company history last year – adding an average of 10.5% on top of salaries. That’s nearly six weeks' worth of pay.

No wonder they aren’t seeing the staffing issues that have plagued companies like Southwest.

There is no denying that the pandemic wreaked havoc on airline stocks over the last three years. While most major airlines saw a little “recovery” bounce, Southwest, American, and Delta have all dropped 36%, 41%, and 32%, respectively. Alaska Air Group dropped 20% during that period as well.

2023 Chart of ALK (NYSE: ALK) compared to Delta Air Lines Inc (NYSE: DAL), Southwest Airlines (NASDAQ: LUV) and American Airlines Group Inc (NASDAQ: AAL)

However, Alaska Air Group is well-regarded as a fundamentally stable company. It has a $6.7 billion market cap — half the size of American Airlines and four times smaller than Southwest. It is meaner and leaner than its larger competitors. 

This showed during their Q4 earnings call. Here are a couple of highlights:

  • Generated full-year revenue 10% above 2019 levels, doing so on 9% less capacity
  • Fourth quarter revenues totaled $2.5 billion. That's up 11.3% versus the fourth quarter of 2019
  • An industry-leading 7.6% full-year adjusted pre-tax margin (ALK’s margins have ranked first in the industry for 11 of the last 13 years)
  • Finished 2022 with one of the industry's best completion and on-time performance rates
  • Earnings guidance of $5.50 to $7.50 per share, which would return the company to 2019 EPS levels

So despite a 9% drop in capacity, the company managed to put together a very solid 2022 and should only pick up momentum from here. In the first quarter alone, flying capacity is expected to rise to 14%, and the full-year capacity is expected to increase from 8% to 10%.

Buy the Ticket, Take the Ride

Alaska has also announced plans to replace all its Airbus A319s and A320s with Boeing 737 MAX 9s. Those planes have almost 20% better seating capacity and 25% less fuel burn. That will help the company keep its best-of-class margins in the future.

The company also reported upticks in their more expensive seats: the first class was up 19%. and the premium class was up 14% versus the fourth quarter of 2019. That means travelers trust the airline with the service and attention that comes with those expensive seating options.

I believe that the airline will be somewhere near pre-pandemic levels by the middle of the year. And I’m not alone: of all of the stocks on the S&P 500 that are rated a “buy” by analysts, Alaska Air Group seems to have quietly become the darling of them all. If you average out all the ratings, Wall Street has a 50% upside for the company, with 93% of analysts calling it a buy.

Like any airline, there can be volatile times, so I’m giving Alaska Air Group a solid long-term buy rating with expectations of short- and long-term gains.

In other words, “Buy the Ticket. Take the Ride.”

Godspeed, 

Jimmy Mengel
The Profit Sector

Follow me on Twitter @mengeled.

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Tags: Airline StocksAlaska Air Group Inc (NYSE: ALK)American Airlines Group Inc (NYSE: AAL)Delta Air Lines Inc (NYSE: DAL)Southwest Airlines Co (NYSE: LUV)Talkeenta
Jimmy Mengel

Jimmy Mengel

I’ve had a long road as an investor, researcher, and writer of all things investing.  I began investing when I was 8 years old: I started with a small collection of baseball cards and quickly learned the art of buying low and selling high.  By the time I was 12, through forward-thinking investment in rookie cards for players that turned into superstars and countless trades with my buddies, I had amassed a treasure of cards that were worth thousands of dollars then – and tens of thousands today. I learned several things about investing through my card collection: buy value, avoid hype and know your timeline.  My dad, a financial analyst then, even invited me to present my strategies to his office colleagues. It was then that I began turning those lessons into my own stock market portfolio.  The companies I bought back then, like Disney, General Electric, and Coca-Cola, allowed me to build up enough wealth to buy my first car. I discovered the power of dividends, the magic of compound interest, and the sanctity of safety. The lessons I learned then still stick with me today. I wanted to continue sharing my story with others, so I began working my way into financial journalism, which I’ve done for over a decade. I’ve had the privilege of helping hundreds of thousands of readers achieve financial independence. I've brought my readers closed annual portfolios of 79%, 70%, 76%, and a historic 382% over the last four years alone. Several of the stocks I uncovered ended up becoming life-changing quadruple-digit gains. In the process, I’ve traveled the globe from Africa to Colombia to Transylvania, meeting with CEOs, CFOs, and CTOs in different market sectors. I’ve also toured with presidential candidates, grilled influential congressmen, and interviewed pop-culture business icons. I’ve been a keynote speaker at some of the largest investment conferences in the U.S. I go the distance and put my boots on the ground so you’ll have all the tools you need to succeed in any market. I couldn’t be more excited to bring the same research, enthusiasm, and results to The Profit Sector, where I’ll break down the market for you weekly. Read my bio and access my full free archive here. 

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© 2022 The Profit Sector, LLC. All rights reserved. Our website provides stock market research, commentary, and analysis. Information is provided “as is” and solely for information purposes, not for trading purposes or advice.

Nothing on this website should be considered personalized financial advice. Any investments recommended herein should be made only after consulting with your personal investment advisor and only after performing your own research and due diligence, including reviewing the prospectus or financial statements of the issuer of any security. The Profit Sector, its managers, its employees, affiliates and assigns (collectively "The Company") do not make any guarantee or warranty about the advice provided on this website or what is otherwise advertised above. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. The Company is not affiliated with, nor does it receive compensation from, any specific security. To the maximum extent permitted by law, the Company disclaims any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations provided herein prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses.

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