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Analyzing Alaska Airlines’ Key Valuation Metrics

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Valuation

EV/EBITDAR (enterprise value to earnings before interest, tax, depreciation, amortization, and rent) is used as a measure for airline companies. It takes debt into consideration in the form of EV. Alaska Airlines’ (ALK) EV/EBITDAR stands at about 5.17x. This is lower than most of its competitors. EV/EBITDAR is expected to decrease to 5.03x in the next fiscal year.

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Strong operational statistics

For 1Q15, Alaska Airlines’ PRASM (passenger revenue per available seat mile) grew by 10% YoY (year-over-year). In contrast, its fuel cost per gallon fell by about 40% YoY from 1Q14. This indicates strong operational efficiency.

Strong revenue stream

Alaska Airlines has been able to double its revenue from about $2.4 billion in 2003 to $5.3 billion in 2014. This was made possible by rapidly expanding into newer markets. Its revenue growth is higher than its larger competitors.

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Negative net debt

The airline industry is a capital intensive industry and most players are high on debt. However, Alaska Airlines has a negative net debt. This means that the company’s cash balance exceeds its debt and the company can comfortably pay off its debt anytime.

Strong margins

Alaska Airlines has been successful in maintaining strong EBITDA margins of about 23%. This is much higher than American Airlines’ (AAL) 15.79%, Delta Air Lines’ (DAL) 19.9%, and United Continental’s (UAL) 13.59%. Southwest Airlines (LUV) has the same margins as Alaska Airlines at 23%

You can invest directly in Alaska Airlines’ shares or through ETFs like the iShares Transportation Average ETF (IYT). IYT holds ~38% in airline stocks.

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