Shares of Alaska Air Group (ALK 2.28%) fell as much as 13.7% this week, according to data from S&P Global Market Intelligence. The fifth-largest airline in the U.S. and recent acquirer of Hawaiian Airlines slipped after other airlines reduced guidance for the first quarter due to macroeconomic factors. Wall Street is worried about a slowdown in consumer spending that could affect airlines' earnings power.
Alaska Air Group stock is now down around 30% from recent highs set earlier this year.
Owning and leasing planes is expensive, along with paying flight attendants and pilots. To make a profit, an airline must have consistently full planes, with customers willing to pay for tickets that go above its operating costs, which is typically a thin line, leading to slim profit margins for these companies.
Economic downturns can ruin the airline sector's profitability. This week, Delta Air Lines forecast a slowdown for the first quarter. Management is reducing its Q1 2025 revenue guidance range from 7%-9% down to 3%-4% due to falling corporate confidence and consumer trends. This is likely related to government firings and tariff volatility coming from the new Trump administration.
Most airline stocks fell along with this announcement, and Alaska Air Group was not immune to the sell-off. The company has not preannounced a reduction in expectations for the first quarter, but Wall Street is predicting a tough period for the airlines, which is why the stock is down.
A slowdown in sales would be an abrupt change for Alaska Air Group, which has been putting up strong financial results. Total revenue grew 13% year over year to $11.7 billion, with some inorganic sales from the Hawaiian Airlines acquisition. Revenue for premium and first-class cabins grew 10% in the fourth quarter, a good sign for Alaska's strategy of building a premium West Coast and Pacific Ocean airline with the combined Alaska and Hawaiian fleets.
In 2025, Alaska Air Group plans to grow its flight capacity by 2%-3% compared to 2024, dependent on how many deliveries it receives from Boeing. The company has put up remarkable growth and market share gains over the long haul and is closing on 10% market share in the United States when combined with Hawaiian Airlines.
Airlines are not the best businesses in the world, but if you are planning on buying the dip, Alaska Air Group is a well-run airline to bet on.
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