Alaska Airlines (ALK) grew its revenue at a compound annual growth rate (or CAGR) of 7% in 2010–2014. The airline had total revenues in 2010 of $3,832 million, which grew to $5,368 million in 2014. American Airlines (AAL) grew its revenue at a CAGR of 14% in the same period to reach $42.6 billion. However, the growth mainly came from the merger of US Airways with American Airlines.
Similarly, United Airlines grew at a CAGR of more than 10.8% due to its merger with Continental Airlines. Delta Air Lines grew its revenue at a CAGR of 4.9%, and Southwest Airlines grew its revenue at a CAGR of 9%.
How is Alaska growing its revenue?
Alaska’s growth in revenue was largely driven by its growth in capacity and traffic:
Revenue passenger miles, or RPM: This is the number of revenue passengers multiplied by the distance these passengers travel in the reporting period. Alaska Airlines has lowest RPM among its chosen peers at 30,718 million miles in 2014, which is less than 15% of the traffic recorded by large carriers such as American Airlines (AAL) and United Continental (UAL). Alaska Airlines’ RPM grew 35% in the last four years from 22,841 million miles in fiscal 2010 to reach 30,718 million miles in 2014.
Average seat miles, or ASM: This is a measure of capacity calculated as the number of seats available multiplied by the distance traveled during a period. Capacity can be increased by increasing the number of flights, adding new routes, or increasing the frequency of flights. American Airlines has the largest available capacity among Alaska Airlines’ peers with over 265,657 million miles. United Airlines and Delta Air Lines closely follow. The ASM for Alaska Airlines has grown from 27,736 million miles in fiscal 2010 to 36,078 million miles in fiscal 2014.
Passenger mile yield: This metric is calculated as passenger revenue divided by the RPM. Alaska grew its yield by 0.05 cents in 2014 over 2013. In 2010, Alaska Airlines recorded a passenger mile yield of 14.3 cents. Delta Air Lines recorded the highest yield in 2014 among the peers at 17.22 cents, followed by American Airlines at 17.04, United Airlines at 16.04, and Southwest Airlines at 16.34 cents.
Investors can gain exposure to Alaska Airlines by investing in the iShares Transportation Average ETF (IYT). IYT holds ~19% in airline stocks and ~6% in Alaska Airlines. The ETF also holds ~2% in JetBlue Airways (JBLU), ~3% in Southwest Airlines (LUV), and ~4% in Delta Air Lines (DAL).