Facebook
Twitter
Alaska Air Group (NYSE: ALK) and Southwest Airlines (NYSE: LUV) reported quarterly results on Thursday, and they may as well be spaceship stocks considering how their earnings rocketed higher.
Which airline earnings report was stronger, and does either offer better value? Certainly you should consider one of the stocks, because they are probably the two best of the entire domestic airline sector.
Southwest reported a record quarter of net income of $689.9 million, or $1.02 per share, which is an amazing ninth consecutive record quarter of profits. That was up $206 million over the previous quarter. Also, operating income of $1.1 billion was a record, and up 40% over last year, while operating margins stood at 22.49%.
Southwest has always had good operating metrics, but having $628 million of operating cash flow, and another $1.38 billion from the first quarter, puts Southwest in amazing position.
This all happened even though Southwest’s revenues were only up about 1.9%. This was offset by a 4.9% expense decline. For the company, it is seeing great growth in the (finally) opened Love Field in Dallas, and its ever-increasing international flights. Yes, you can now fly to Belize from the U.S. on Southwest.
Alaska Airlines also had a record quarter. Its net income was $230 million, a 45.9% increase over last year. Adjusted EPS of $1.76 per share was a 55.9% increase over last year. There’s no doubting that these are stellar numbers in every way.
Alaska’s Sky-High Margins
Margins exploded, which is what sent Alaska Airlines profits into orbit, increasing to 25.8% over last year’s 18.4%. Alaska Airlines has operating margins of 21% compared to Southwest’s 22.49%.
Just like Southwest, Alaska’s return on invested capital was 22%, up from only 16% last year. Why is that? Because Alaska did better on the revenue side, up 4.99%, but as with Southwest, it also cut expenses by 3.99% or $59 million.
Where were Alaska’s big savings, you ask? The expense part of the P&L statement benefited from much lower fuel costs and gains from hedged fuel positions. That one element alone made for a $100 million savings. Since total operating expenses fell by $48 million, you understand how vital fuel costs are to airlines.
Cash to Investors
All this translates to good things for shareholders, because Alaska is putting its cash flow to work by paying investors in a dividend. That dividend is now $0.20 per share, up from $0.125 last year.
On the load factor, revenue passenger miles rose 6%, and available seat miles exploded 10.7 but load factor fell from 86.3% to 84.9%.
Which stock do you buy? Southwest is up 7% to $37.50 with an enterprise value-to-EBITDA ratio of about 8.1. Alaska is flat at $76 with an EV/EBITDA ratio of about 7.7. The stocks are about evenly priced. Alaska is arguably a slightly better value, but I cast my vote for Southwest thanks to its long-running success.
Tesla, Apple and Google are creating this
When people think of Tesla, what immediately comes to mind is the world’s first electric car. It’s an astounding achievement. But what few people realize is that Tesla’s next technological wonder could easily put it to shame. Morgan Stanley says this breakthrough could save the American economy $1.3 trillion each year. And Tesla’s not the only one racing to get it out the door. Apple and Google are working on their own versions too. Get the whole story right here.