A West Coast powerhouse
Alaska Air Group, Inc. (NYSE:ALK) derived 71% of its quarterly revenue from mainline (longer-haul) flying, and another 15% from regional services. The remaining 14% was contributed by freight and mail and other sources.
The carrier has been increasing its available capacity in the 8% range year over year, by way of new routes out of Anchorage, Portland, San Diego, and Seattle to destinations throughout the Western U.S. and Hawaii.
Passenger traffic has increased in tandem with the expansion of seating. This improvement is further evidence that the leisure-flying market has legs. Certainly, Alaska Air Group, Inc. (NYSE:ALK) is impressive in terms of its return on investment, both for the trailing 12 months and historically. (See its Management Effectiveness.)
I expect this airline to remain at the forefront of the leisure-travel industry. As such, the shares look compelling.
Coming back strong
Spirit Airlines Incorporated (NASDAQ:SAVE) is expanding faster than any of the previously mentioned airlines, with available seat miles up 21% in the June quarter. It is building its presence across the U.S., adding both long and short haul routes throughout the 52 states.
This carrier emerged in 2011 when it launched an initial public offering. It has been expanding while also achieving much-improved margin’s thanks to fuel and maintenance-cost containment.
Spirit Airlines Incorporated (NASDAQ:SAVE) derived 59% of its quarterly revenue from passenger flying. Like Allegiant Travel Company (NASDAQ:ALGT), it attributes a large percentage, 41%, to non-ticket sources.
The carrier boasts a clean balance sheet, with no long-term debt and well-above-average margins for the industry (see its ratios). Why are its margins so unusually high? In part, because it keeps costs contained. Moreover, Spirit has been known for very-low airfares on newly introduced routes that are then ramped up once volumes climb. It does, report an ascending load factor (occupancy rate).
All told, Spirit’s strategy is sound and it should continue to perform well over the long term.
Conclusion
The upturn in low-cost, short-haul flying, that began a number of years ago with Southwest Airlines, appears to be persisting strongly. Leisure flying between domestic points is apt to increase in the years ahead. Airlines mentioned in this posting are some of the best investments for those looking to capitalize on this trend.
Among the five carriers discussed, Alaska Air appears to be the best investment at this juncture. but any of the airlines would make a good addition to your long-term portfolio.
The article 5 Mid-Sized Airlines to Buy and Hold originally appeared on Fool.com and is written by Damon Churchwell.
Damon Churchwell has no position in any stocks mentioned. The Motley Fool owns shares of Allegiant Travel and Spirit Airlines.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
