ALASKA AIR VS.

JET BLUE
FINANCIAL STATEMENT ANALYSIS
GAMMA 4
-Elisa Lazzeri
-Adita Sehgal
-Bowen Sun
-Jared Sprunk
-Mike Warden

Aviation Sector Snapshot

Worldwide, the airline industry has revenues of approximately $720B, with US domestic
carriers pulling in nearly $200B of that revenue.

Low cost carriers have made up much of the growth of the airline industry and that
low cost carriers make up 25% of the worlds airline market. -- PwC

Industry operates on razor thin margins. -- PwC

Several factors affect margins of airline companies. These include weather, fuel cost,
labor, route structures, and cost of leasing aircraft.

Alaska Air
Seventh largest airline in the United States.
Ranked first overall in the Wall Street Journals 2014 Airline
scorecard.
Factors helping profitability:
low fuel costs due to the price of oil declining over the
past year
Its willingness to retool through diversification of routes
to grab more market share and minimizing overexposure
to particular routes.

JetBlue
Fifth largest airline in the United States.
Plans to expand its services in the United States, and to Cuba
from JFK Airport.
Load factor have declined from a year ago.
JetBlue has multiple rivals on in multiple markets that are
challenging them in the low cost carrier segment of the airline
industry

Comparison Current Performance

Profitability*

RNOA

Productivity#
40%

4.00
12%

35%

3.50

10%

3.00

8%

2.50

30%
25%

2.00

20%

1.50

15%

1.00

10%

2%

0.50

5%

0%
2012

0.00
2012

0%
2012

6%
4%

2013
Alaska Air

2014
JetBlue

*Profitability (Margin)=
NOPAT/Revenues

JetBlue2

2013

2014

Alaska Air2

#Turnover = Revenues/Average
NOA

2013
Alaska Air

2014
JetBlue

Comparison Industry Specific

Passenger yield

Revenue per seat mile

0.200

0.180

0.180

0.160

0.160

0.140

0.140

0.120

0.120

0.100

0.100

0.080

0.080

0.060

0.060

0.040

0.040
0.020

0.020
0.000

0.000
2011

2012

2013

Alaska Air

Jet Blue

2014

2011

2012

2013

Alaska Air

Jet Blue

2014

Comparison Solvency Scenario

Current Ratio

Cash Conversion Cycle

1.200

25

1.000

20

0.800

70
60
50

15

40

0.600

10

0.400
0.200
0.000

Accounts Receivable
Turnover

2011 2012 2013 2014

Alaska Air

Jet Blue

30

20

10
2011

2012

2013 2014

-5
Alaska Air

Jet Blue

2011 2012 2013 2014

Alaska Air

Jet Blue

Gamma 4s Methodology for Company Comparisons

Companies Valuations

Alaska Air

Cost of
Equity

JetBlue

8.06%

Cost of
Equity

6.68%

Cost of Debt

3.73%

Cost of Debt

3.99%

WACC

7.66%

WACC

5.84%

Sensitivity Analysis
60%
40%
20%
Return0%
on investment
-20%
-40%
-60%
Growth Rate

Alaska Air

JetBlue

Comparison Going forward.

JetBlue

GAMMA 4 CHOOSES ALASKA

AIR.

The estimated price of Alaska Air is $96.63 and JetBlues is $22.08. As

of September 28, JetBlue was $26.66 per share and Alaska Air was
$80.70.

Alaska Air is undervalued by 20% and JetBlue is overvalued by 17%.

The price of Alaska will rise based on this and other reasons.

Alaska Air beats JetBlue on nearly every ratio.

Alaska Airs strategy to consistently look to improve routes and selfimprovement will only make Alaska more profitable in the long run.