Alaska Air May Fly Into Headwinds With Softening of US Domestic Fares; Analyst Looking Into Booking Trends And Aircraft Deliveries

Susquehanna analyst Christopher N. Stathoulopoulos reiterated a positive rating on Alaska Air Group, Inc. (NYSE: ALK), lowering the price target to $58 from $65.

Alaska Air reported second-quarter FY23 operating revenue growth of 7% year-over-year to $2.84 billion, beating the consensus of $2.77 billion. Passenger revenues improved by 7% Y/Y to $2.6 billion.

The analyst noted Alaska Air's guidance raise for FY23 capacity on an unchanged CASM-ex guide didn't screen well, particularly when considering softening U.S. domestic fares, growing U.S. domestic capacity and some slippage in the company's internal expense forecasting.

Stathoulopoulos is closely watching U.S. domestic capacity trends (e.g., 2H23 industry seats available for sale are up ~9% Y/Y) and evaluating if the seat share continues to do well in Alaska Air's core market.

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For Alaska Air's prospects, the analyst was also looking into the booking trends into the fall, focusing on U.S. domestic volumes.

Stathoulopoulos also examined the cadence of aircraft deliveries, with Alaska Air taking delivery of 16 Boeing 737 MAX aircraft YTD and another 18 in the remainder of 2H23 (i.e., 71 by YE23).

On the positive side, the analyst applauds Alaska Air's composition of capacity growth (i.e., 70/15/5/10% frequency/gauge/stage/new markets), with the midpoint of the long-term capacity guide (+4-8%) and favorable CASM-ex outcome still achievable. 

ALK Price Action: Alaska Air shares are trading lower by 0.81% to $47.37 on the last check Wednesday. 

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Photo: Courtesy Alaska Air