We recently compiled a list of the Top 10 Airline Stocks Benefiting From The Air Travel Boom. In this article, we are going to take a look at where Alaska Air Group, Inc. (NYSE:ALK) stands against the other airline stocks.
The aviation sector wasn’t short of optimism heading into the new year as air travel demand reached pre-covid highs and the holiday season showed promise. That optimism is now turning into reality as Delta Airlines announced its Q4 earnings result and surprised to the upside. The announcement has spurred a rally across airline stocks as expectations of other companies posting an earnings beat rise.
Delta reported improved operating margins of 12% vs 9.9% from a year ago. It improved the revenue per available seat mile from $0.1995 a year ago to $0.2004 in the last quarter. All of its international regions showed sequential improvement as revenue generated from international passengers grew at 6%. The company has also improved its guidance for the first quarter to $0.85 at the midpoint to the prior $0.76.
We now look at how this may affect other stocks across the industry.
A commercial passenger jet in the sky, performing its daily flight duties.
Alaska Air Group, Inc. (NYSE:ALK)
2025 will be the first full year of operations for Alaska Air Group since acquiring Hawaiian Airlines. The next 3 years look promising for the airliner after it revised its earnings guidance upward on its Investor Day last month. By 2027, the company expects to grow its margins to 11%-13% on the back of synergies from the Hawaiian Airlines acquisition. It expects about $300 million in revenues from the synergies in addition to $200 million saved via reduced interest costs and efficiencies from scaling operations.
The company’s current margins stand at 3%-4%, giving investors a good chance of a potential re-rating going forward if it can achieve its targets. However, investors must note that the recovery to 11%-13% levels will bring the company to the same level it was at pre-pandemic. This would be a tough task considering how far the costs have gone up.
The plan to increase the premium seating mix to 29% to generate additional revenue will be one way to achieve its 2027 objectives. If the company is able to pull off this plan, the upside is huge.
Overall ALK ranks 8th on our list of the to airlines stocks benefiting from the air travel boom. While we acknowledge the potential of ALK as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as ALK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article was originally published at Insider Monkey.
