How Alaska Air Group Returns Value to its Shareholders

Analysis of Alaska Air Group's 2Q15 Earnings

(Continued from Prior Part)

Strong cash flow generation

Alaska Air Group (ALK) has a strong financial base with solid revenues, strong liquidity, a low-cost structure, and improving margins, all of which help the company generate good cash flows. ALK ’s cash flow currently stands at 32.47% of revenues, which is higher than the industry average of 15.36% and is ahead of most of its competitors.

Such strong cash flow generation indicates that the company has high operational efficiencies. This also allows the company to repay its debt obligations, enabling it to use the remaining cash to reward its investors or reinvest in the business.

Shareholder-friendly activities

During 2Q15, Alaska Air Group repurchased 2.5 million shares for $160 million using its cash flows. The company also rewarded its long-term investors by declaring a quarterly cash dividend of $0.20 per share. This represents a 60% year-over-year increase over the dividend paid in 2Q14. The company has been a continual dividend payer since 1992 and also has the highest dividend yield in the airline industry.

Stock prices beat index returns

Alaska Air Group’s (ALK) shares have consistently outperformed the major indices. ALK’s shares have generated more than 490% returns in the past five years, compared with the iShares Transportation Average ETF’s (IYT) 85% returns and the SPDR S&P 500 ETF’s (SPY) 90% returns. In the same period, competitors like American Airlines’ (AAL) shares increased by 62.5%, JetBlue’s (JBLU) shares rose by 263%, and Southwest Airlines’ (LUV) shares rose by 209%.

In the last ten years, Alaska Air Group’s stock has increased by 788%, compared with IYT’s 115% growth and SPY’s 70% growth. Although ALK has been able to beat indices even during the past year, JetBlue’s stock has gained almost twice that of Alaska Air Group. In the last year, ALK’s shares increased by 51%, compared with JBLU’s 114% and SPY’s 6%. IYT’s shares declined by 3% in the same period.

With low debt levels and strong cash generation, Alaska Air Group has the ability to reward its investors and grow the business. This makes it an interesting option for long-term investors.

Continue to Next Part

Browse this series on Market Realist:

• Part 1 - An Overview of Alaska Air Group’s 2Q15 Earnings

• Part 2 - A Detailed Look at Alaska Air Group’s 2Q15 Results

• Part 3 - What Helped Alaska Air Group Drive its 2Q15 Earnings?