Yahoo Finance Can Alaska Air Group’s Margin Continue to Expand in 2016?
Why Alaska Air Group's Upbeat 1Q16 Results Left Investors Flat
Earnings grow
Alaska Air Group’s (ALK) operating profit increased by 22% to $290 million, and its net income increased by 23% year-over-year (or YoY) to $184 million. Its diluted earnings per share (or EPS) grew by 30% YoY to $1.46, higher than analysts’ consensus estimate of $1.43 per share.
Cost savings
Substantial fuel savings as a result of falling crude oil prices has helped Alaska Air Group (ALK) to reduce its expenses. ALK’s fuel costs fell by 34.8% YoY to average $1.29 per gallon in 1Q16. Cost per available seat mile, or CASM-ex fuel, also declined by 1.2%.
Declining utilization
Alaska Air Group’s aggressive capacity expansion led to a 1.4% decline in capacity utilization, which is expressed as the airline’s load factor. This limited the airline’s margin expansion.
Can fuel costs decrease further?
Alaska Air Group (ALK) expects to maintain its fuel costs at ~$2.00 per gallon for 2016 and 2017. This is more or less in line with its peers Delta Air Lines (DAL), American Airlines (AAL), and United Continental (UAL). Analysts are estimating that the airline margins have peaked, and they do not expect ALK to see significant incremental benefits from its fuel costs.
However, if demand growth does not correspond to Alaska Air Group’s aggressive capacity expansion, falling utilizations should add to the pressure on Alaska Air Group’s margin. On the other hand, higher debt may contract Alaska’s margins. Read our next article to find out more.
Alaska Air Group (ALK) comprises ~1.7% of the Industrials/Producer Durables AlphaDEX ETF’s (FXR) holdings.
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