Shares of Alaska Air Group, Inc. (NYSE: ALK) opened strong today, rising by 3%, following the airline’s announcement of an upward revision in its profit guidance for the third quarter.
The company expects its Q3 EPS to range between $2.15 and $2.25, a substantial increase from the previous outlook of $1.40 to $1.60 and well above the $1.61 consensus.
This upward revision is largely attributed to strong summer travel demand, where the airline operated a record schedule with a remarkable 99.3% completion rate.
Additionally, Alaska Air benefited from unexpected revenue in July due to industry-wide disruptions linked to CrowdStrike, and continued strong performance in August and September.
Furthermore, the company has lowered its economic fuel cost expectations for the quarter, forecasting a range of $2.60 to $2.70 per gallon, aided by moderating crude oil prices and West Coast refining margins.
Alaska Air’s Hawaiian Holdings acquisition
In addition to the profit guidance hike, Alaska Air’s strategic moves are drawing investor attention.
The company is acquiring Hawaiian Holdings (NASDAQ: HA) for $1.9 billion, a deal that has faced scrutiny from various regulatory bodies.
Despite concerns expressed by United Airlines (UAL) and some state authorities, the Department of Justice (DOJ) recently completed its regulatory review of the merger without significant objections.
The focus now shifts to the Department of Transportation (DOT), which is expected to issue a decision soon.
The deal is seen as a strategic move to enhance Alaska Air’s market presence, particularly in the Hawaii and Pacific markets, while maintaining both brands’ identities.
The proposed merger with Hawaiian Airlines is crucial for Alaska Air as it looks to navigate the increasingly competitive landscape.
The deal, which is expected to preserve inter-island flights at affordable prices, has been carefully structured to avoid the pitfalls that led to the collapse of the JetBlue-Spirit merger.
Alaska Air has committed to maintaining Hawaiian Airlines’ Airbus fleet and brand, while also potentially repurposing some aircraft to bolster its operations.
This merger, if approved, could significantly strengthen Alaska Air’s position in the lucrative Hawaii market, where it would hold nearly 40% of the mainland-to-Hawaii capacity, a critical factor in its future growth strategy.
Alaska Air’s Q2 earnings
Alaska Air’s Q2 2024 earnings provided a mixed bag of results. The airline reported a non-GAAP EPS of $2.55, beating analyst expectations by $0.49.
However, its revenue of $2.9 billion fell short of estimates by $40 million, marking a modest 2.1% year-over-year increase.
The company generated $580 million in operating cash flow and held $2.5 billion in unrestricted cash and marketable securities as of June 30, 2024.
Despite these strong cash flow metrics, Alaska Air revised its full-year EPS guidance downward to a range of $3.50 to $4.50, reflecting ongoing challenges in the cost environment, particularly fuel prices and labor costs.
Operationally, Alaska Air has made several strides, including a 99.5% completion rate in Q2, one of the highest in the industry.
The company continues to expand its fleet, adding new Boeing 737-9 and 737-8 aircraft, and has enhanced its cargo capabilities with the addition of a second 737-800 freighter.
Furthermore, Alaska Air’s sustainability initiatives, such as offering sustainable aviation fuel credits to passengers, and its recognition for customer satisfaction and diversity, underscore its commitment to long-term value creation.
Alaska Air’s challenges
Despite these positives, Alaska Air faces several challenges. The rising cost of jet fuel, especially on the West Coast, remains a significant concern, although the recent moderation in refining margins offers some relief.
Additionally, the company is negotiating a new contract with its flight attendants. This could lead to higher labor costs, similar to what has been observed across the industry post-COVID-19.
Alaska Air’s ability to manage these costs will be crucial as it seeks to improve its profitability.
Fundamentally, Alaska Air remains a solid company with a strong balance sheet, holding $2.5 billion in cash and marketable securities.
The airline has a debt-to-capitalization ratio of 45%, within its target range of 40% to 50%, and continues to repurchase shares, demonstrating confidence in its long-term prospects.
The company’s strategic focus on the Pacific Northwest and its expansion into new markets, such as Latin America and the Caribbean, positions it well to capture future growth opportunities.
As Alaska Air continues to navigate these opportunities and challenges, the question remains: Is it time to buy?
To answer that question, it’s crucial to examine the technical indicators that can provide insights into the stock’s price movements and identify possible entry points.
Let’s delve into the charts to assess where Alaska Air might be headed in the coming weeks and whether it’s poised for continued growth or potential volatility.
Alaska Air stock: strong support at $32
Alaska Air’s stock saw a rapid decline from $70 to $20 during the onset of the COVID-19 pandemic but made a strong recovery back to above $70 by the second half of 2021.
Source: TradingView
Since then the stock has seen an extended downturned, highlighted by the lower highs and lower lows on the daily charts.
Despite this bearish trend on the long-term charts, Alaska Air’s stock has found support multiple times near $32 since October last year, failing to go below it.
Considering that investors who are looking to enter the stock after today’s hike in profit guidance can do so at current levels with a stop loss of $31.4.
If the stock starts witnessing bullish momentum in the short and medium term it can take it back to its last year’s highs near $57.
Traders who remain bearish on the stock and are looking to initiate short positions must wait for it to bounce back above $42 following which they can short the stock with a stop loss above the recent swing high at $46.2.
If the longer-term bearish momentum prevails, we can again see the stock falling near $32 and taking support there.
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