Alaska Air Group ALK is benefiting from an increased air travel demand scenario. The company’s labor-friendly approach is encouraging. However, ALK is grappling with high operating expenses and weak liquidity.

Factors Favoring ALK

The uptick in air travel demand is boosting ALK's top line, with consolidated traffic (measured in revenue passenger miles) rising 35% to 19.1 billion in the fourth quarter of 2024. To meet this surge in demand, capacity (measured in available seat miles) grew 33% to 17.1 billion. As traffic growth outpaced the expansion in capacity, the consolidated load factor (percentage of seat occupancy) increased by 0.9 percentage points, reaching 83.8%.

ALK’s efforts to expand its reach are impressive. The company plans to launch Seattle as an international gateway in 2025, offer nonstop routes to Tokyo Narita and Seoul Incheon and add 12 international widebody destinations by 2030. The airline will also operate the only nonstop service between San Diego and Washington, D.C.

ALK is expanding from Alaska and Oregon this summer with new routes, and Hawaiian Airlines received two A330-300 freighters from Amazon, bringing its freighter fleet to six.

Moreover, the company’s proactive labor-friendly approach is commendable. The deal between Alaska Airlines, the wholly owned subsidiary of Alaska Air Group, and its flight attendants, approved by 95% of participants, includes wage increases of 18.6% to 28.3%, boarding pay, retroactive pay and scheduling improvements. The deal, which took effect on March 2, 2025, follows extensive negotiations after the previous contract expired in December 2022. This positive outcome is likely to boost employee morale, improve labor relations, and enhance productivity, retention and customer service, benefiting the airline’s long-term performance.

The company’s shareholder-friendly initiatives are encouraging. In the fourth quarter of 2024, ALK repurchased 3.9 million shares of common stock for approximately $250 million, bringing total repurchases to 5.5 million shares for $312 million in 2024. ALK authorized a new $1 billion share repurchase plan to be executed over the next four years, with repurchases beginning in January 2025.

Owing to such tailwinds, Alaska Airlines shares have surged 87.9% year over year compared with the industry’s growth of 27.2% in the same period.

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ALK: Key Risks to Watch

Alaska Airlines’ financial stability is challenged by soaring operating expenses and weak liquidity, influencing the company’s bottom line. In the fourth quarter of 2024, total operating expenses rose by 37% year over year. This surge in operating expenses is primarily driven by escalated labor costs.

Weak liquidity does not bode well for the company. ALK exited the December-end quarter with a current ratio (a measure of liquidity) of 0.61. A current ratio of more than 1 is always considerable as a current ratio of less than 1 indicates that the company does not hold sufficient cash to meet its short-term obligations.

ALK’s Zacks Rank

ALK currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Investors interested in the Zacks Transportation sector may consider American Airlines AAL and SkyWest SKYW.

American Airlines currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.  AAL has an expected earnings growth rate of 23.5% for the current year.

The company has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering an average beat of 37.1%. Shares of AAL have risen 28.4% in the past six months.

SkyWest currently sports a Zacks Rank #1 and has an expected earnings growth rate of 16% for the current year.

The company has an encouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters. The average beat is 16.7%. Shares of SKYW have climbed 27.9% in the past year.

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This article originally published on Zacks Investment Research (zacks.com).

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