uploads///ALK Analyst estimates

Can Alaska Air Group Continue Its Robust Performance in 4Q15?

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Nov. 10 2015, Updated 2:06 p.m. ET

4Q15 expectations

For 4Q15, Alaska Air Group (ALK) expects its capacity to grow by about 12.5%, mostly driven by better demand from new and existing markets, longer stages, and larger gauge. This would push its full-year capacity growth to be slightly over 10%. The airline’s load factor is expected to decline by 0.8% in October 2015 and increase in both November and December.

The airline also expects its nonfuel unit costs to decrease about 1% in 4Q15. The airline plans to add about 11 markets in the fourth quarter and end 2015 with its lowest cost structure ever.

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2016 expectations

Although Alaska Air Group (ALK) noted that its official guidance for 2016 would be announced at Investors Day, it did hint at some key metrics for the next year. The airline expects its revenues to climb by 8% while its capacity should grow for 1Q16 by about 13%, but then decline in the following quarters. The company expects to report a nonfuel unit cost reduction of ~0.6% for 2015.

Alaska Air Group plans to add only three new routes in the first quarter of 2016: Boise, Idaho, to Sacramento, California; Seattle, Washington, to Victoria, British Columbia; and once-weekly service from Los Angeles, California, to Sun Valley, Idaho.

Analyst estimates

For 2015, analysts expect Alaska Air Group’s sales to grow by 4.4% to $5.97 billion, increasing to 7% in 2016 and 6% in 2017. EPS, or earnings per share, should grow by 54% in 2015 to $6.44. However, as fuel costs are expected to recover in the second half of 2016, analysts expect EPS growth to normalize. For 2016, EPS is expected to grow by 7% and for 2017 by 10%.

Investors can gain exposure to airlines like Delta Air Lines (DAL), American Airlines (AAL), United Continental Holdings (UAL), Southwest Airlines (LUV), Alaska Air Group (ALK), and JetBlue Airways (JBLU) through the iShares Transportation Average ETF (IYT). IYT holds ~38% in airline stocks. All of these airlines show positive growth trends. You can also gain broad-based exposure to airlines through the SPDR S&P Transportation ETF (XTN).

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