How Has Network Expansion Helped Alaska Air Group in 3Q15?

Alaska Airlines' 3Q15 Earnings Beat Analyst Estimates by 3%

(Continued from Prior Part)

Strong growth

Alaska Air Group (ALK) has recorded a 7% compounded average revenue growth (or CAGR) in the past 12 years. The airline has focused on the fast-growing market of the Pacific Northwest. It has also grown its reach throughout the West Coast and to Hawaii.

New routes

Alaska Air Group has focused on growing its network by entering new markets. The company’s management noted, “ We’ve added 15 market since the beginning of Q3 2014 and about half of those new markets were added in the last quarter.”

The airline also expanded its nonstop service to 84 destinations from Seattle alone after it inaugurated nonstop flights between Nashville and Seattle. The company currently has a strong 53% market share on the Los Angeles–Seattle route and a robust 88% market share on the Los Angeles–Portland route.

About 75% of the new markets added have already turned profitable within six months of launching services. This has not only helped the company expand its passenger base and see better schedule utility, but it is also seeing improved revenue streams across all markets.

Partnerships

Alaska Air Group’s (ALK) Alaska Airlines has been successful in developing strong strategic alliances and partnerships with key airlines that have aided in its rapid expansion and success. The airline has partnerships with:

• Aeroméxico

• Air France

• American Airlines (AAL)

• British Airways

• Cathay Pacific

• Delta Air Lines (DAL)

• Emirates

• Fiji Airways

• Hainan Airlines

• Icelandair

• KLM

• Korean Air

• LAN Airlines

• Pen Air

• Qantas

• Ravn Alaska

Alaska Air Group has also strengthened its relations with American Airlines, which sent about 5,000 passengers into the Alaska Airlines network each day during 3Q15. These partnerships comprise 15% of passengers on all Alaska Airlines flights.

Alaska Airlines has a stronghold at Seattle-Tacoma International Airport and in the burgeoning Pacific Northwest region. The airline is poised to benefit as more international players operate in this new market.

Investors can gain exposure to airlines like Spirit (SAVE), Southwest Airlines (LUV), and JetBlue Airways (JBLU) through the SPDR S&P Transportation ETF (XTN). These airlines form ~7% of XTN’s holdings.

Continue to Next Part

Browse this series on Market Realist:

• Part 1 - Alaska Air Group Stock Soars after Its 3Q15 Earnings Release

• Part 2 - Alaska Air Group Reports Strong 3Q15 Performance

• Part 3 - What Helped Alaska Air Group Post Strong Growth in 3Q15?