Stock Wars: Delta Air Lines Vs. Alaska Air Group

Benzinga’s weekly Stock Wars matches up two leaders in a major industry sector with the goal of determining which company is the better investment.

This week, the duel is between two leaders in the airline industry: Delta Air Lines Inc. DAL and Alaska Air Group, Inc. ALK.

The Case For Delta: This company has its roots in Huff Daland Dusters of Macon Georgia, which made history in 1925 as the world’s first aerial crop-dusting company. Four years later, the company had a new name — Delta Air Service — and a new focus as a passenger carrier. The company expanded over the years with several acquisitions, but it ran into financial problems in 2005 that resulted in a bankruptcy filing that caused it to be delisted from the New York Stock Exchange; it was relisted in 2007 after emerging from bankruptcy.

Today, the company promotes itself by operating flights per day that serve 275 destinations on six continents. However, over the Memorial Day weekend, the Atlanta-headquartered carrier absorbed a public relations nightmare with the cancellation of roughly 700 flights during the four-day holiday stretch, or about 4% of its total flights. The airline went into damage control with a statement that insisted it provided cancelation notices "at least 24 hours in advance of departure time wherever possible," adding that 94% of passengers last Sunday were placed on alternative flights within an average of 10 hours from their original flights’ departure time.

Last week, Delta announced it was cutting about 100 flights daily between July 1 and Aug. 7, mostly in the U.S. and Latin American markets. But the airline insisted it was not leaving any market, and Reuters reported the company circulated an internal memo that said, “We know there is extreme demand to fly a very full schedule, but we continue to adjust our network and other aspects of our operation to balance customer demand for Delta with the realities of our operating environment.”

In its most recent earnings data, the first-quarter results published on April 13, Delta reported total operating revenue of $9.3 billion, up from $4.1 billion one year earlier. The company also reported a net loss of $940 million, an improvement from the $1.1 billion in the previous year. Its loss on the earnings per share of -$1.48 was also an improvement from -$1.85 in the first quarter of 2021.

“With a strong rebound in demand as omicron faded, we returned to profitability in the month of March, producing a solid adjusted operating margin of almost 10%,” said CEO Ed Bastian. “As our brand preference and demand momentum grow, we are successfully recapturing higher fuel prices, driving our outlook for a 12-to-14% adjusted operating margin and strong free cash flow in the June quarter.”

Delta shares opened for trading on Wednesday at $41.69, and its 52-week trading range is $29.75 to $48.54.

See Also: Benzinga's complete Stock Wars series

The Case For Alaska Air Group: This company traces its roots back to McGee Airways, which flew passengers, mail and cargo across Alaska beginning in 1932. The company changed names a few times and was first publicly traded in 1943 on the American Stock Exchange.

Alaska Air Group was founded as a holding company in 1985 for Alaska Airlines, and in 1986 it acquired the regional carrier Horizon Air. The company also acquired Virgin America in 2016, but it opted to retire that brand name while incorporating its operations into Alaska Airlines. Today, the company’s airlines serve more than 120 destinations across the U.S., Canada, Mexico, Costa Rica and Belize.

Last week, Alaska Air Group’s pilots voted to authorize a strike if they were unable to secure an agreement on a new employment contract. Negotiations between the company and the Air Line Pilots Association, the union representing the carrier’s roughly 3,000 pilots, have been in progress for three years. The pilots can only walk off their job and go on strike if National Mediation Board grants them permission.

Not every corner of the company’s workforce is stuck in a contentious environment — aircraft technicians at Horizon Air ratified a two-year contract last month and dispatchers at Alaska Airlines ratified a five-year contract in April.

In its most recent earnings data, the first-quarter results published on April 21, Alaska Air Group reported total operating revenue of $1.6 billion, up from $797 million one year earlier. The company also reported a net loss of $143 million, up from $131 million in the previous year. The loss per share of -$1.14 was greater than the -$1.05 loss from the first quarter of 2021.

Alaska Airlines CEO Ben Minicucci accentuated the positive by noting that “March results were particularly strong, marked by our highest cash sales month in history and revenues that exceeded 2019 levels for the first time since the pandemic began. Our people are working hard to get our airline back to its pre-COVID size and to return to growth from there, all while delivering the operational excellence that we're known for.”

Alaska Air Group shares opened for trading on Wednesday at $48.26, closer to the lower end of its 52-week range of $43.39 to $70.90.

The Verdict: Two companies in a troubled industry that recorded year-over-year net losses and are dealing with either a threat to operations (Alaska Air Group’s unhappy pilots) or an ongoing crisis (Delta’s acute flight cancelations).

Of course, there is no such thing as a permanent crisis, and it would not be impossible to imagine that the situation in the first quarter of 2023 could be light years away from the ongoing problems. For investors aligned to the leap-of-faith approach to stock trading, both companies would seem attractive. But for those who prefer current-day stability and security, this Stock Wars duel ends with the recommendation to wait and see how the companies handle their ongoing problems.

Photo: The Pixelman / Pixabay