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Alaska Air Group (ALK) Up 14% in a Month: More Room to Run?

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Shares of Alaska Air Group (ALK - Free Report) have outperformed its industry in a month’s time. The stock has gained 14% compared with the industry’s 6.5% growth.

One- Month Price Performance

Let’s delve deep to unearth the reasons behind the company’s impressive price performance and find out if there is room for further appreciation:

November’s Oil Price Rout

It is a well-known fact that oil prices are inversely related to the health of airline stocks. This is because fuel-related expenses form a major chunk of airline expenditure.

Given this backdrop, the fact that oil prices dropped significantly in November (the steepest monthly decline since 2008) was a favorable development for the airline industry. In fact, the commodity ended the month at $50.93 a barrel, bringing its monthly decline to around 22%. The steep drop was due to fears of oversupply and a weakening demand outlook. Most industry experts believe that oil prices will rise in December. Much of their optimism lies in the anticipation of a production cut at OPEC’s meeting, scheduled for Dec 6.

Airline players, including Alaska Air Group, however, have taken steps to combat the threat of higher oil prices. Alaska Air Group like its fellow airlines — Delta Air Lines (DAL - Free Report) , United Continental Holdings (UAL - Free Report) and JetBlue Airways Corporation (JBLU - Free Report) — raised the bag fees. From Dec 5, Alaska Air Group will charge $30 and $40 for the first and second checked bags, respectively, compared with $25 and $35 earlier.

Busy Thanksgiving Period

Alaska Air Group, like other airlines, is being aided by a solid uptick in passenger revenues, courtesy of an upbeat demand for air travel. The Thanksgiving holiday season (Nov 16 - Nov 27) is an added positive for airlines owing to increased traffic in the period, which should boost top-line growth in the final quarter of 2018.

Driven by this optimism, Alaska Air Group raised its projection for fourth-quarter unit revenues at its investor day on Nov 27. The company now expects revenue per available seat mile (TRASM: a key measure of unit revenues) between 12.60 cents and 12.80 cents, reflecting an increase of 3-5% (the earlier view had predicted this metric in the 12.40-12.60 cents range).

With the winter holiday travel period ahead, Alaska Air Group’s top line should continue to benefit from increased passenger revenues.

Zacks Rank

Alaska Air Group carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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