Dahlman Rose Downgrades Alaska Air to Hold Following Solid Earnings Results

Alaska Air Group ALK reported strong 4Q10 results, and the company plans to increase capacity to fill growing demand. At this time, pricing continues to be strong, out-pacing rising jet fuel costs. Dahlman Rose is downgrading the shares to Hold from Buy as it believes there is some short-term risk. Dahlman Rose believes Alaska Air Group is one of the best managed airlines, and the company's recent record earnings report is evidence an airline can be profitable in an environment of rising fuel prices. In the short term, Dahlman is concerned about the 8%-9% 2011 capacity growth plan at the mainline. As a result, Dahlman will lower its rating from Buy to Hold, expecting the shares to take a breather in the short-term. 1Q11 forward bookings remain strong despite the consolidated capacity growth of 11% planned for the quarter. Booked load factors indicate an improvement of 2%, 1% and 1% for January, February and March, respectively. The company indicated yields have also improved due to fare increases of $7-$15 over the last several weeks. The revenue environment should continue to strengthen as the year goes on, out-pacing rising jet fuel costs. Alaska Air Group reported 4Q10 EPS of $1.28 per share, exceeding Dahlman's estimate of $0.94 and the consensus estimate of $1.02, although the consensus estimate hovered around $0.70 for much of the quarter. Revenues in the quarter grew by 13.3% to $958.5 million from $846.1 million last year. The increase was due to traffic growth at Alaska Airlines which was up by 14.9% while yields improved by 1.8%. ALK is trading higher at $61.16