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Face it: making money in airline stocks right now is about as easy as herding cats.  Margins are slim, fuel prices are devouring earnings, and passengers are howling in protest over a plethora of fees and often poor customer service.  If you want proof that the industry’s woes are hammering airline stocks, look no further than the Guggenheim Airline ETF (NYSE:FAA ), which set a new 52-week low of $30.49 on Thursday.

But as jazz legend Duke Ellington once said, “A problem is a chance for you to do your best.” And Alaska Airlines (NYSE:ALK ) seems to have taken that motto to heart.  The company prides itself in taking good care of its customers: it topped JD Powers’ recent airline customer satisfaction survey for the fourth straight year. The traditional network carrier posted particularly high marks for flight crew, boarding, deplaning, baggage, check-in, and reservations.

It’s no secret that customers have become increasingly irate over the high cost and low customer service of legacy carriers like Delta (NYSE:DAL ), United Continental (NYSE:UAL ), American (NYSE:AMR ) and US Air (NYSE:LCC ).  Alaska has managed to woo passengers with lower baggage fees ($20 for the first three bags), an enviable 90.7% on-time performance – second only to Hawaiian Airlines (NYSE:HA ) and blowing away the industry average of 77.1%.

And when glitches do happen, the airline makes sure to communicate with passengers.  When a major IT glitch grounded 150 flights back in March, the airline updated customers

via social media and offered to compensate the 12,000 passengers whose travel was disrupted.

While customer satisfaction is critically important for every airline, Alaska’s stockpile of goodwill isn’t the only reason the stock is worth buying. Here are three more reasons ALK might warrant a place in your portfolio:

  • Passenger and Performance Growth. Alaska’s June traffic grew by 7.9% compared to the same month last year. That increase boosted the airline’s load factor – a measure of passengers vs. the total seating capacity – to a record 85.4%.  The carrier’s on-time performance jumped in June to 91.4%%.
  • Revenue and Earnings Growth .  Despite absorbing a 50% increase in fuel costs, ALK last week reported second quarter net income of $28.8 million ($0.78 a share). While those figures are substantially lower than the $84 million ($2.29 a share) for the same quarter in 2010, a $128 million increase in passenger revenues for the quarter covered more than $90 million in fuel-hedge losses and fleet transition costs.
  • Solid Fundamentals. At $60.70, Alaska Airlines is trading more than 38% above its 52-week low of $43.89 last August.  With a market cap of $2.17 billion, the company has a price to earnings growth (PEG) ratio of 1.36.  While PEGs over 1 are an indication that the stock is overvalued, the industry average is 4.40. Alaska’s debt position is enviable too: $1.04 billion in cash compared to only $1.44 billion in debt.

As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.

Category: Forex

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