Shares of Alaska Air (ALK) are falling today after it was cut by the folks at Raymond James, while Delta Air Lines (DAL) is gaining after getting hit hard earlier this week.
Associated Press Raymond James analysts Savanthi Syth and James Parker explain why they downgraded Alaska Air:
We are downgrading Alaska Air from Outperform to Market Perform due to the risk to our 2015 EPS estimate from intensifying competitive capacity pressure. While 1Q15 schedules are still very preliminary, it appears competitive seat capacity growth is set to accelerate to 12% y/y from the already elevated ~6% y/y level over the previous 6 quarters. We continue to believe that Alaska will use its dominant market position and strong balance sheet to successfully compete with Delta and support its stock. However, while the competitive issues in Seattle are not new, we believe significant upside to the stock in the near term is unlikely given risks to 2015 earnings estimates.
Speaking of Delta, it plunged 5.2% on Wednesday after the airline said revenues would be lower than it thought. Wolfe Research’s Hunter Keay and Jared Shojaian look into Delta’s miss:
August was the third straight month of underwhelming PRASM results from Delta Air Lines. Perhaps not coincidentally Alaska Air and JetBlue (JBLU) have been underperforming industry PRASM lately as well, two airlines defending themselves against Delta Air Lines. To be sure, Delta Air Lines' PRASM is still growing faster than its CASM, which means margins are expanding y/y, but the rate of margin change is likely to be "less good" relative to United Continental (UAL) and American Airlines (AAL) due to Delta Air Lines’ capacity choices. We like Delta Air Lines, just not as much as most other Outperform-rated airlines.
Shares of Alaska Air have dropped 1.1% to $47.13 at 1:53 p.m., while Delta Air Lines has gained 0.5% to $39.47, JetBlue has risen 0.4% to $12.57, United Continental has climbed 2.1% to $51.46 and American Airlines has fallen 0.9% to $38.13.
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