Editors Note:

While some companies are complaining about excess capacity in the market place this company is increasing profits. The excess capacity in the airline sector has caused a lot of earnings pain. Alaska Airlines is not one of them. They are growing and raising prices.



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ALK - Alaskan Air - Company Description

Alaska Air Group, Inc. is the holding company of Alaska Airlines and Horizon Air. The Company operates through three segments: Alaska Mainline, Alaska Regional and Horizon. Its Alaska Mainline segment operates the Boeing 737 part of Alaska's business. It offers north/south service within the western United States, Canada, Mexico and Costa Rica, as well as passenger and dedicated cargo services to and within the state of Alaska. It also provides long-haul east/west service to Hawaii and cities in the mid-continental and eastern United States from Seattle. Its regional operations consist of flights operated by Horizon, SkyWest Airlines, Inc. and Peninsula Airways, Inc. Alaska is buying Virgin America and the acquisition is expected to be completed late this year.

In their recent Q2 earnings the company reported $2.12 compared to estimates for $2.08. Revenue of $1.5 billion rose 4% and was in line with estimates. Available seat miles increased 11.2% to 11,062 million. The load factor was 84.9% and flat year over year despite the sharp increase in miles. Passenger revenue per mile decreased 7.7% to 11.42 cents. Cost per available seat mile excluding fuel declined -3.7% to $7.78 cents. Earnings rose 12% to $418 million while expenses rose only 1%. The average fuel price was $1.53 per gallon, down from $2.12 in the year ago quarter. The company had $1.6 billion in cash at the end of the quarter with long-term debt of only $509 million.

Alaska expects capacity to rise by 8% in Q3 and by the same amount for the full year. They are adding 6 additional Boeing 737 planes to bring the fleet to 147 by the end of 2016. By the end of 2018 they expect to operate 156 planes. Despite the rising capacity the number of passengers is also rising to keep that load factor at a healthy 85%. With fuel prices falling their earnings are going to accelerate.

Earnings Oct 20th.

Shares rose on the earnings on the 21st and have continued to rise as other airlines whine about excess capacity cutting into earnings. Shares closed at a 3-month high on Wednesday and slightly over strong resistance at $67.50. If the breakout continues the next material resistance is $82.

With an ALK trade at $68.25

Buy Sept $70 call, currently $1.65, initial stop loss $62.50.


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