Here's Why You Should Retain Alaska Air Stock Now

Alaska Air Group's ALK robust air travel demand is boosting its top line. Shareholder-friendly actions and fleet upgrade efforts are praiseworthy. However, high operating costs are hindering the company's bottom line.

Factors Favoring ALK

Buoyed by strong air travel demand, Alaska Air issued optimistic earnings per share guidance for the second quarter of 2024 between $2.20 and $2.40 and for the full-year 2024 between $3.25 and $5.25. ALK is boosting capacity and expects available seat miles (a measure of capacity) to increase in the range of 5-7% in the second quarter of 2024 to meet the upbeat demand. Our estimate hints at an increase of 5.5%.

The company implemented an enhanced quality oversight program to validate aircraft work and quality during production. ALK's shareholder-friendly actions bode well. Resuming share buybacks last year, ALK repurchased shares worth $21 million in the first quarter of 2024.

A glimpse at the company's price trend reveals that its shares have risen 5% year to date, surpassing the industry's decline of 4.6%.

Image Source: Zacks Investment Research

Key Risks

Rising fuel costs are hindering ALK's bottom line. This trend is primarily due to the ongoing production cuts adopted by major oil-producing nations and geopolitical tensions. In the first quarter of 2024, oil prices increased 16%. Expectations for the second quarter of 2024 place fuel prices between $3.00 and $3.20 per gallon. Our estimate is currently pegged at $3.08 per gallon.

The northward movement in expenses on labor is also hurting ALK's bottom line by pushing up operating costs.Total non-fuel operating expenses, excluding special items, increased 9% to $1.8 billion in the first quarter of 2024. Wages and benefits rose by $0.08 billion, or 11%, in the first quarter of 2024.

Zacks Risk

ALK currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks for investors' consideration in the Zacks Transportation sector include SkyWest SKYW and Kirby Corporation KEX, each sporting a Zacks Rank #1 (Strong Buy) at present.

SkyWest has an expected earnings growth rate of 787% for the current year.

SKYW has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average surprise of 128%. Shares of SkyWest have jumped 102.2% in the past year.

KEX has an expected earnings growth rate of 42.2% for the current year.

The company has an encouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters. The average beat is 10.3%. Shares of Kirby have climbed 59.9% in the past year.

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