Editors Note:

The Dow Transports has had a rough couple of weeks thanks to the declines in the railroads. However, airlines are taking off. Several of the airlines are moving towards new highs but I think Alaska has the best outlook.


ALK - Alaska Air Group - Company Profile

Alaska Air Group, Inc., provides passengers and cargo air transportation services primarily in the United States. The company operates through three segments: Alaska Mainline, Alaska Regional, and Horizon. It serves approximately 100 cities in Alaska, the Lower 48, Hawaii, Canada, Mexico, and Costa Rica. As of December 31, 2015, the company's fleet consisted of 147 Boeing 737 jet aircraft; and 52 Bombardier Q400 turboprop aircraft. Company description from FinViz.com.

Alaska is in the middle of an attempted acquisition of Virgin America for $2.6 billion. The acquisition will give them a larger share of the California market and some choice landing slots on the East Coast. The Dept of Justice is still reviewing the deal and the completion deadline has been extended. Analysts believe the deal has a 75% chance of closing. The CEO said last week there is no danger of a breakup. They are simply having to work through some questions posed by the DOJ. There is also a suit brought by travel agents and some frequent fliers but that is expected to be settled if the DOJ approves the acquisition. The judge in the trial has said the case could proceed once the DOJ approves the deal. Otherwise there is no need for the trial.

On Thursday ALK reported earnings of $2.20 compared to estimates for $2.08. Revenue of $1.57 billion beat estimates for $1.56 billion. Passenger miles rose 8.1% and available seat miles rose 8.1% to 11,212 million. The load factor of 85.6% was flat. The company ended the quarter with $3.226 billion in cash compared to $1.328 billion in the year ago quarter. They have long term debt of $1.861 billion.

Alaska is growing. They have a decent on-time record of 87.8% in August and passenger sentiment is very positive.

Once they complete the Virgin acquisition their capacity and passenger miles are going to rise sharply. They have already said they are reducing more than 200 Virgin management positions in California alone to reduce costs. Virgin has 10 Airbus A319s and 50 Airbus A320s.

Shares have been in an uptrend since mid September and are trading at a six-month high at $75. Resistance is $82.50. Because of the crazy market I am putting an entry trigger on the position to make sure the stock is rising before we enter.

With an ALK trade at $75.50

Buy Jan $80 call, currently $1.70, initial stop loss $71.35.


No New Bearish Plays