When it comes to the airline industry, it’s like comparing a first-class seat to a middle seat in economy. One is definitely a better pick than the other – and in this case, we’re not talking about the comfort of the ride, but the potential returns. Alaska Air stock (NYSE: ALK) is soaring higher, outperforming its peer, American Airlines stock (NASDAQ: AAL). And boy, oh boy, does Alaska Air have a better seat on the plane than American Airlines. Investors seem to have figured that out, given Alaska Air’s higher valuation and better financial position, compared to American Airlines.
Hold onto your seats, folks, because here’s why Alaska Air is expected to offer smoother flying than American Airlines over the next three years. We’ll take a look at historical revenue growth, stock returns, valuation, and more.
American Airlines’ stock has been like a turbulent flight, experiencing a 20% decline since early January 2021, compared to a 20% increase for the S&P 500. But wait, there’s more! It’s underperformed the broader market for the last three years, while Alaska Air stock hasn’t exactly taken off either, with a similar underperformance. It seems like beating the market has been tougher than getting an on-time arrival these days, even for the big players in the airline industry.
So, what’s on the horizon for both these stocks? Will they be flying high or hit some turbulence in the next 12 months? Although we expect a rebound for both, Alaska Air looks set to take the lead. Here’s why.
American Airlines’ Revenue Growth Is Slightly Better
- American Airlines’ revenue growth has been slightly better, with a 25% average annual growth rate in the last three years, compared to 23% for Alaska Air.
- The recent rise in revenues for both airlines can be attributed to a rebound in air travel demand, with passenger traffic and ticket yield on the rise. But hey, watch out for the cooling of average ticket prices and expanding overall capacity.
- In the last twelve months, American Airlines’ 17% sales growth has fared better than 14% for Alaska Air.
- Looking ahead, we expect Alaska Air to see better revenue growth than American Airlines. So buckle up, because it looks like smooth skies ahead for Alaska Air.
American Airlines Is More Profitable
- American Airlines’ operating margin may have taken a hit lately, but it still fares better than the margins for Alaska Air.
- Earlier this year, American Airlines closed negotiations with pilots, agreeing to an increase in pay, which might result in some higher costs. But watch out, Alaska Air! The company is looking to improve its margin profile with lower costs, so be ready for some competition there.
Alaska Air Is Comparatively A Less Risky Pick
- Financial risk? Not a problem for Alaska Air. Its lower debt as a percentage of equity and similar cash cushion to American Airlines show that Alaska Air has a better debt position and less risk. So, if you’re looking for a less bumpy ride, Alaska Air seems to be the way to go.
The Net of It All
- Throw it all into the mix, and what do we get? American Airlines has seen superior revenue growth and is more profitable. But Alaska Air offers smoother flights, outperforming American Airlines with a better financial position. It looks like the clear skies belong to Alaska Air.
Favorable Earning Projections for Alaska Air Sparks Investor Rumblings
Investors are buzzing with excitement as financial experts predict formidable returns for Alaska Air Group over the next three years. This prognosis is attributed to the company’s projected revenue growth that outshines its competitors. The comparison of valuation multiples also reflects positively on Alaska Air, indicating a more favorable position than American Airlines.
Upbeat Forecast for Alaska Air
Alaska Air Group is set to soar above the competition with a predicted 45% return over the next three years according to Trefis Machine Learning analysis. This promising future suggests that Alaska Air is primed to outperform American Airlines, which is expected to yield a modest 5% return during the same period. The superior outlook for Alaska Air is primarily driven by its anticipated revenue growth, setting the stage for lucrative returns for savvy investors.
When comparing the performance of Alaska Air with American Airlines, the former emerges as a more favorable investment option. Alaska Air’s stock trades at 0.5x revenues, a significant improvement from its last five-year average of 1.1x. Conversely, American Airlines stock trades at a mere 0.2x sales compared to its last five-year average of 0.4x. These numbers further reinforce the potential for substantial returns from Alaska Air as opposed to American Airlines.
As displayed in the table below, Alaska Air’s returns outshine those of American Airlines across various timeframes, indicating a brighter future for investors. While American Airlines struggles with negative year-to-date returns, Alaska Air continues to demonstrate its resilience with positive returns, affirming its position as a more lucrative investment option in the aviation sector.
Investors seeking market-beating portfolios and high-quality investment opportunities are turning to Trefis for valuable insights. The positive outlook for Alaska Air has ignited fervent interest among investors, establishing the company as a promising candidate for substantial returns in the coming years.
As the financial landscape continues to evolve, Trefis remains a trusted source for price estimates and peer comparisons, empowering investors to make informed decisions and stay ahead of the curve.
The robust earning projections for Alaska Air have not only captured the attention of investors but have also sparked a reinvigorated sense of enthusiasm within the market. With promising returns on the horizon, Alaska Air stands as a shining beacon in the aviation industry, captivating the interest of seasoned and aspiring investors alike. The fervent buzz surrounding Alaska Air’s future earnings underscores the company’s potential to deliver substantial rewards to astute investors.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.