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Why Hold Strategy is Apt for Alaska Air Group (ALK) Now

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We issued an updated research report on key airline player, Alaska Air Group (ALK - Free Report) , on Aug 29.

Notably, the company’s product portfolio has broadened significantly following the acquisition of Virgin America, last year. In fact, the company has become a major player along the West Coast following the buyout. Also, its top line has been boosted by the strong growth in passenger revenues.

Alaska Air Group’s performance with respect to passenger unit revenues is also encouraging. Moreover, the carrier's July traffic report was impressive, on the back of strong demand for air travel. The company's efforts to reward shareholders too raise optimism in the stock.

However, high labor costs continue to hurt the company. In May, pilots of Horizon Air, a subsidiary of Alaska Air Group, approved an amendment to the existing eight year pay-related contract. This will increase labor costs further as pilots' compensation has shot up following the amendment. Consequently, this Seattle, WA-based company’s bottom line is expected to remain under pressure, going forward.

With labor deals in vogue in the airline space, high labor costs are not unique to Alaska Air Group. Other players in the space like Hawaiian Holdings (HA - Free Report) and Allegiant Travel Company (ALGT - Free Report) too have inked deals with various labor groups over the last few months.

Moreover, though positive on Alaska Air Group’s Virgin America buyout, we note that the transaction, like any merger, has integration risks attached to it. Merger-related costs are also limiting bottom-line growth at Alaska Air Group.

Consequently, shares of Alaska Air Group have underperformed the industry it belongs to, so far this year. The company’s shares have declined 15.3% year to date, as against the industry rally of 6.6%.

 

In view of the above commentary, we would advise investors to wait for a better entry point before accumulating shares. The Zacks Rank #3 (Hold) carried by Alaska Air Group seems to suggest the same.

Stock to Consider

Investors interested in the airline space may consider SkyWest Inc. (SKYW - Free Report) sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

SkyWest has seen the Zacks Consensus Estimate for current-year earnings being revised 1.9% upward over the last 60 days.

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