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Alaska Air (ALK) Declines 6% YTD: What's Behind the Drop?

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Shares of Alaska Air Group, Inc. (ALK - Free Report) have lost 6.2% on a year-to-date basis due to multiple headwinds.

Reasons for Dismal Performance

Escalating fuel costs have persistently put pressure on the bottom line for quite some time. In fact, the company anticipates economic fuel cost per gallon to be $2.30 in the third quarter, up approximately 27.8% on a year-over-year basis.

In August 2018, the Seattle, WA-based company was in news for being involved in the plane crash on Ketron Island. The incident has raised questions as to how a non-pilot (who has been described as suicidal by authorities) could start, control and fly a complex modern aircraft. The plane theft has raised security-related concerns.

Moreover, we are concerned about capacity overexpansion marring the company’s performance. At the end of the first seven months of 2018, Alaska Air generated RPMs (revenue passenger miles) of 32.12 billion (up 6.6% year over year) and ASMs (available seat miles) of 38.28 billion (up 7.5% year over year). However, load factor declined 70 basis points (bps) to 83.9%.

Furthermore, the company’s below-par performance with respect to unit revenues also induces pessimism on the stock. The metric is estimated to decline up to 3% in the third quarter.

Additionally, Alaska Air’s trailing 12-month return on equity undermines growth potential. The company’s ROE of 17% has gradually declined in past year compared with the industry’s ROE of 23.5%.

Bearish Readings & Zacks Rank

The negativity revolving around the stock can be gauged from the Zacks Consensus Estimate being revised 23.3% downward in the past 60 days for current-quarter earnings.

Moreover, the company’s Momentum Score of C highlights short-term unattractiveness.

The bearish Zacks Rank #5 (Strong Sell) carried by Alaska Air reflects these headwinds. The unfavorable rank implies that investors should get rid of the stock from their respective portfolios. Going by the proven model, stocks with a Zacks Rank #4 (Sell) or 5 are likely to underperform the broader market over the next one to three months.

Stocks to Consider

A few better-ranked stocks in the broader Transportation Sector are Old Dominion Freight Line, Inc. (ODFL - Free Report) , Triton International Limited and SkyWest, Inc. (SKYW - Free Report) . While Triton carries a Zacks Rank #2 (Buy), Old Dominion and SkyWest sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Old Dominion, Triton and SkyWest have gained 12.1%, 21.1% and 2.6% in the last six months, respectively.

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