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Alaska Air’s 2017 Revenue: A Mix of Organic and Inorganic Growth

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Apr. 20 2017, Updated 6:36 a.m. ET

Analysts’ estimates

In 1Q17, Alaska Air Group’s (ALK) revenue is expected to rise 32.2% year-over-year (or YoY) to $1.8 billion. Its 2Q17 revenue is expected to rise 40.1% YoY to $2.1 billion, and its 3Q17 revenue is expected to rise 42.2% YoY to $2.2 billion.

The company’s revenue growth is expected to slow to 34.5% YoY to $2.1 billion in 4Q17, leading to full-year revenue growth of 37.1% to $8.1 billion.

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Virgin America acquisition

Alaska Air completed its Virgin America merger in December 2016. The full impact of the merger will likely be visible in its 2017 results. Thus, the bulk of the 37.1% growth the company expects in 2017 will be the result of consolidating its and VA’s financials.

In 2016, Alaska and Virgin America clocked combined revenue of $7.5 billion. Analysts are expecting 8.5% organic growth from the combined company. Alaska’s management, however, expects its organic growth to be ~7% in 2017. This estimate is higher than the growth it’s seen over the last two years, and it’s questionable.

Unit revenue trend

For the first nine months of 2016, Alaska Air’s unit revenue fell ~5.6%. However, a slowdown in its capacity growth improved its situation in 4Q16. In 4Q16, its passenger revenue per available seat mile fell just 0.9% to $0.11.

Alaska Air’s capacity growth has slowed to an average of 4% YoY since September 2016, compared to 10.3% YoY in the first seven months of 2016.

Outlook

For 1Q17, Alaska Air is expecting its passenger unit revenue to be in the range of 10.26 cents to 10.31 cents, a fall of 3.5% YoY. Its total unit revenue (revenue per available seat mile) is expected to be 12.10 cents to 12.15 cents, a fall of 3% YoY.

The other three major airlines—Delta Air Lines (DAL), American Airlines (AAL), and Southwest Airlines (LUV)—have cut their unit revenue guidances for 1Q17, while United Continental (UAL) has maintained its unit revenue guidance. Alaska forms 1.8% of the holdings of the First Trust Industrials/Producer Durables AlphaDEX ETF (FXR)

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