Imperial Capital Turns Bullish On Alaska Air

The bullish case for Alaska Air Group, Inc. ALK, a U.S.-based airliner that flies to more than 115 destinations across the U.S., Mexico, Canada and Costa Rica, can now be made, according to Imperial Capital.

The Analyst

Imperial Capital's Michael Derchin upgraded Alaska Air from In-Line to Outperform with a price target lifted from $62 to $95.

The Thesis

Alaska Air's stock should trade at a premium valuation versus the airline group for several reasons, Derchin said in a note. These include:

• Capacity growth should moderate in the fourth quarter of 2018 and grow by 2 percent in 2019 due to the company's flexibility to restrain capacity below the 4 to 8 percent historical range.
• Comparisons should ease year-over-year in legacy Virgin America markets after competitive issues in 2017 and 2018, especially within California and transcontinental.
• Notable significant merger synergies should start in 2019 after the "heavy lifting" component of the Virgin America acquisition is complete.
• The "Saver Fare" discount ticket promotion should start showing benefits in the near-term.
• The fast growing loyalty program and expectations for baggage fee increases should result in higher ancillary revenues.
• Better than expected close-in fares has already resulted in management lifting its third-quarter revenue per available seat mile guidance.
• West Coast to Hawaii fares are already adjusting to preempt rival Southwest Airlines Co LUV entering the market next year.

Price Action

Shares of Alaska Air Group were trading higher by more than 3.5 percent to $69.49 at time of publication.

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