Alaska Air Group Hit By Multiple Headwinds: Time To Dump?

Alaska Air Group, Inc. (NYSE:ALK) has been plagued by numerous headwinds of late. Shares of the company have gained 0.8% in the last three months, underperforming the industry’s increase of 11%.

Reasons Behind the Underperformance

High fuel and labor costs have been limiting the carrier’s bottom-line growth for quite some time now and the fourth quarter is likely to be no different. Evidently, the company has raised its guidance for the fourth quarter of 2017 as well as full-year non-fuel unit costs, mainly on a pay-related deal inked with its pilots.

The airline anticipates fourth-quarter cost per available seat mile (CASM) excluding fuel and special items between 8.63 cents and 8.68 cents, higher than the previous view of 8.50 cents-8.55 cents. Economic fuel cost for the same period remains unchanged at $2 per gallon.

For 2017, CASM excluding fuel and special items is predicted between 8.22 cents and 8.24 cents. Earlier forecast was in the range of 8.19-8.21 cents. The estimate for 2017 economic fuel cost per gallon stands at $1.83, an increase from the prior expectation of $1.82.

Moreover, expenses related to the acquisition of Virgin America have potential to hurt the bottom line going forward.

Additionally, the carrier’s operations have been severely affected by back-to-back natural calamities. Notably, its Passenger revenue per available seat mile (PRASM: a key measure of unit revenues) decreased 4.2% year over year to 11.29 cents in the third quarter. A persistently below-par performance of this key metric is likely to dent the stock’s performance significantly.

Estimate Revisions

The negative sentiment surrounding the stock is evident from its southbound estimates. For the stock has seen the Zacks Consensus Estimate for current-quarter earnings being revised 3.1% downward in the last 30 days. Moreover, for full year, the consensus mark has been revised 8.3% downward in the last 60 days.

Zacks Rank & Style Score

In view of the above negatives, we believe investors would do better to discard Alaska Air Group stock from their portfolio for now. The carrier’s Zacks Rank #5 (Strong Sell) also supports our view, indicating that the stock is likely to underperform the broader market over the next one to three months.

Furthermore, the company’s Momentum Score of F highlights its dull prospects over the short term.

Stocks to Consider

Investors interested in the airline space may consider Gol Linhas Aereas Inteligentes S.A. (NYSE:GOL) , International Consolidated Airlines Group (LON:ICAG) SA (OTC:ICAGY) and Deutsche Lufthansa (DE:LHAG) AG (OTC:DLAKY) . While Gol Linhas sports a Zacks Rank #1 (Strong Buy), International Consolidated Airlines and Deutsche Lufthansa carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Gol Linhas, International Consolidated Airlines and Deutsche Lufthansa have soared more than 200%, 52% and 100%, respectively, in a year.

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