Alaska Air HubsAir Hubs Alaska
Energie, the management looks at how these changes in the competition have affected the Alaska Air Group's results. Dave and Tom have just unveiled what they believe are the ten best shares that can buy at the moment investor .... and the Alaska Air Group was not one of them! The Alaska Air Group is currently the fifth-largest US carrier with a turnover of 7.93 billion dollars in 2017.
About half of this increase was organically generated, but half came from the Virgin America takeover closed at the end of 2016. Alaska is the fifth largest carrier in the USA, but is still quite far behind the first four. Its three largest companies are the legacies that we all know about - American Airways, Delta and United.
All of them have revenues of about 40 billion dollars, about five times that of Alaska. The southwest, which is number 4, has almost three times the yearly turnover of Alaska. You really are dominating the charter business, but that also provides a lot of opportunity for smaller airlines like Alaska Air Group to grow.
That' s an important rationale why Alaska in 2016 chose to purchase Virgin America. Ultimately, the underlying rationale behind the combination was to extend Alaska's geographical presence to provide a growing opportunity. Looking back a few years or more, Alaska was the dominating carrier in the Pacific Northwest.
There was a primary Seattle hubs, secondaries in Portland and Anchorage, and a relatively small California operation with small, focussed urban services in Los Angeles and San Diego, as well as some Hawaii departures from other California states. Alaska is now an important San Francisco based operator with the Virgin America takeover.
It also has a much larger carbon print in Los Angeles, because Virgin America was quite powerful there too. I know that these are all towns that are very much in demand by airline companies, because at a very heavily frequented aerodrome it can be hard to get take-off and landing times and gates and the like.
Decreased 26% over the year because they had this income boost after the Virgin America deal, but profit ability was down and they recorded underlying basic EPS of $6.64, which was almost 10% lower for the year. Alaska' s strength historical was that because it was in this sheltered Pacific Northwest Market, where there was not so much rivalry, especially in Alaska, something happened in Portland, for many years, it was happening in Seattle, although lately there has been a sharp rise in rivalry from Delta Airlines in Seattle.
So Alaska was way above its competitor. Now that it is beginning to face more intense competitive pressure in its Seattle and California stores as well as in some other mergers headwind, we call it, the margins really have dropped quite a lot over the past year.
For example, many carriers experienced some marginal pressures in 2017 due to increasing aviation cost, but Alaska had this increased competitive environment in both California and Seattle from Delta Airways. This was a fairly sharp decrease, despite the fact that Alaska Airways remained at an above-average return on investment in comparison to other carriers.
Adam Levine-Weinberg owns stakes in the Alaska Air Group and Delta Air Lines.