Should You Invest in Alaska Airlines?

OVERVIEW

Alaska Air Group is the parent company of Alaska Airlines, one of the largest carriers in the United States. It provides air service for both passenger and cargo in the United States and select international destinations in Latin America and the Caribbean. The airline has several west coast hubs including Seattle, Portland, San Jose, San Francisco, Los Angeles, and San Diego. The company was founded in 1932 in Seattle.

Why You Should?

  1. Alaska Airlines was at a crossroads in what it was going to do with its future fleet with a mix of Airbus A320s and Boeing 737s. This pandemic has given them the opportunity to start to retire some of their Airbus planes which they got from their acquisition of Virgin America. The airline looks to retire some more Airbus planes and switch them with Boeing airplanes.
  2. Alaska Airlines operates a great route network in Alaska, something which no other airline can compete with. They have found the perfect combination of passenger transport and cargo operations in this state. This route network in Alaska will benefit the company’s future growth after this pandemic.
  3. Alaska Airlines is the only US carrier with a dedicated freighter fleet (made up of the Boeing 737–700 freighter). The airline uses this airplane predominantly for cargo operations in Alaska and it transports food and other essentials to remote locations. This cargo network in Alaska and around the United States will benefit the company during the pandemic as the demand for air cargo is at all-time highs.
  4. Alaska Airlines was expecting the delivery of the Boeing 737 MAX fleet. However, the pandemic and the grounding of the type have delayed these plans. The 737 MAX looks to be recertified before the end of the year. This will help Alaska Airlines operate a more fuel-efficient fleet because they can switch out older airplanes with this new fleet.
  5. Alaska Air Group has a strong balance sheet to get them through this pandemic. They have seen rising revenues and profits before this pandemic when demand for air travel was at all-time highs. However, this has helped them build a stronger balance sheet with a cash reserve of around 3.7 billion dollars and an unused government loan at around 1.8 billion. In the financial year of 2019, the company reported revenues of around 8.8 billion and a profit of around 770 million. Both of these metrics are higher than what the company reported in the financial year of 2018 when they had revenues of around 8.3 billion and profits of around 440 million.

Why You Should Not?

  1. Alaska Airlines faces tough competition in a price-sensitive industry from companies like Delta, United, Southwest, and American Airlines. Competition from other international airlines like Aeromexico, Copa, and Air Canada. This might hurt the company in the future.
  2. The impacts of the COVID-19 Pandemic have been felt around the airline industry. Alaska Airlines has seen a massive drop in the demand for passenger air travel. The airline also needs to prepare for some of the business travel demand to never return. The impacts of the pandemic may be mid-term concerns for the airline.

MY OPINION

In my opinion, I think that Alaska Airlines is one of the airlines that are better positioned to go through this pandemic due to its cargo capabilities across the United States as well as the streamlining of its fleet to reduce operating costs. The return of the Boeing 737 MAX fleet will position this company into the future of air travel. However, the pandemic as well as competition might hurt the company.

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Aaditya Patel

Aaditya Patel

Aaditya Patel is a writer who publishes analysis on companies publicly traded on the NYSE. Follow him @the_investing787 on Instagram for summary posts.