On Tuesday, Susquehanna maintained a Neutral rating on shares of Alaska Air (NYSE: NYSE:ALK), but lowered the price target to $41.00 from the previous $42.00. The firm cited a challenging operating environment for Alaska Air and its low-cost carrier peers heading into the second half of 2024 and the 2025 fiscal year.
This outlook is attributed to factors such as an increase in US domestic capacity, with available seat miles (ASMs) expected to rise by 4% year-over-year in the latter half of 2024, a leveling off of leisure demand in light of a weakening macroeconomic backdrop, and a sluggish recovery in business travel, with indicators like the KDS Back to Work Barometer hovering around 50%.
Alaska Air, while having successfully navigated pilot contract negotiations, is still in the process of ratifying a flight attendant contract, with a tentative agreement reached in June. This, combined with a projected modest growth in ASMs of about 5% year-over-year by the 2025 fiscal year, is anticipated to put pressure on cost per available seat mile excluding fuel (CASM-ex) and operating margins.
However, the airline's financial health appears robust, with leverage projected to remain under 1.5 times, based on operating assumptions including an adjusted EBITDAR (earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs) of approximately $1.6 billion for FY25.
Additionally, the firm believes that Alaska Air's pending transaction with Hawaiian Airlines (HA) could weigh on its stock performance throughout the 2024 fiscal year. Despite the potential challenges highlighted by Susquehanna, Alaska Air's solid balance sheet is seen as a positive factor in its financial outlook.
In other recent news, the U.S. Treasury Department has raised $556.7 million from auctioning warrants in 11 major U.S. airlines, originally issued as part of COVID-19 relief efforts. The Treasury had previously set the minimum reserve prices for these warrants at a total of $458 million. American Airlines (NASDAQ:AAL) topped the list of recipients with $12.6 billion in government aid, followed by Delta with $11.9 billion, United Airlines with $10.9 billion, and Southwest Airlines (NYSE:LUV) with $7.2 billion.
In the corporate sphere, Alaska Airlines has announced significant leadership changes, promoting two executives and appointing a new president for its subsidiary, McGee Air Services. The appointments reflect Alaska Airlines' commitment to operational excellence and strategic growth.
Meanwhile, Wolfe Research has upgraded Alaska Air's stock from Peer Perform to Outperform, citing favorable earnings potential and an attractive valuation. The firm set a new price target of $55.00 for the airline.
Finally, over 160 members of the U.S. House of Representatives have called upon the National Mediation Board to assist approximately 80,000 flight attendants, including those from United Airlines, American Airlines, and Alaska Airlines, in securing new contract agreements.
InvestingPro Insights
Turning to real-time data from InvestingPro, Alaska Air Group Inc (NYSE: ALK) shows a promising financial outlook despite the challenging operating environment. With a current market capitalization of $4.88 billion and a more attractive adjusted P/E ratio of 9.07 for the last twelve months as of Q1 2024, the airline is positioned for potential growth. Additionally, the company's revenue growth has been steady, with a 2.96% increase over the last twelve months leading up to Q1 2024.
An InvestingPro Tip highlights that Alaska Air's net income is expected to grow this year, aligning with analyst predictions of profitability for the company. Moreover, the airline has been profitable over the last twelve months, which is a reassuring sign for investors considering the current economic headwinds. It is also worth noting that while Alaska Air does not pay a dividend, its stock price movements have been quite volatile, presenting opportunities for agile investors.
For those looking to delve deeper into Alaska Air's financial analysis, there are additional InvestingPro Tips available, offering comprehensive insights into the company's performance and future outlook. Interested readers can take advantage of the PRONEWS24 coupon code to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription to access these valuable tips and make more informed investment decisions.
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