Alaska Airlines Stock vs Delta: Which Is Best?

Alaska Air Group, Inc (NYSE:ALK) and Delta Air Lines, Inc. (NYSE:DAL) were grounded in March 2020 as the when global travel restrictions took hold. This kept the stocks down for the rest of the year, with few options for takeoff.

But things are looking better now that Pfizer’s vaccine trials are showing effectiveness of 90 percent in treating the COVID-19 viral infection. But which is the better buy between Alaska Airlines and Delta stock?

Each has challenges to getting back to their regular cruising altitudes. Although the pandemic has a treatment, the world is still slow to reopen.

Over 12.6 million people were still unemployed by election time, and government stimulus provisions basically ran dry. Major business events like CES (the largest event in Las Vegas and most attended trade show in the world) are still scheduled to go virtual.

With both business and consumer passenger travel at 40 percent of the prior year in the week after the election, it’s clear turbulence is ahead. The question now is when are these publicly traded airlines expected to take off again, starting with Alaska Air.

Alaska Airlines Stock Surviving On Government Loan

Alaska Air Group and Southwest Airlines (LUV) took the hardest hits from the coronavirus pandemic, and they’re the slowest airlines to recover.

The company received nearly $1 billion in government bailout grants from the CARES Act, which acted as a flotation device during the market crash.

Its stock price dropped from the $70 to $75 range to a low of $20.02 and is only halfway to recovering from the initial crash.

It did, however, receive a 20-percent boost the week after the election, as the market reacted to the news of a coronavirus vaccine.

Still, the company reported a net loss of $431 million in the third quarter of 2020, which comes out to -$3.49 per diluted share.

This kept its adjusted net debt at $1.7 billion through the year, which is offset by the company’s $5.5 billion in liquidity to give it $3.8 billion in cash and cash equivalent.

In September, Alaska took a $135 million CARES Act loan, with the ability to borrow up to $1.9 billion at a low interest rate.

The company is offering COVID-19 testing for travelers and enforces social distancing rules, including wearing masks while traveling on the plane. These measures are helping it recover as it heads into a hopeful holiday travel season.

Delta Earnings Loss Was Massive

Delta Air Lines (DAL) also got a government bailout to the tune of $5.4 billion (including $1.6 billion in loans).

It took another $6.5 billion in liquidity from loans and bonds backed by its frequent flier program. This helped it climb to more than double its 52-week low of $17.51 at the start of the SARS-CoV2 crisis.

It’s still barely trading below its $55-60 price range in the wake of the election, but it recovered more of its $20 billion market capitalization than Alaska.

When the pandemic hit, the company responded by axing its highest-paid employees by offering early retirement packages. It also pivoted to draw more revenue from its SkyMiles frequent flier program while the travel industry reeled from the pandemic’s economic effects.

Its third quarter earnings report showed a pre-tax GAAP loss of $6.9 billion, or -$8.47 per share. Despite its massive daily cash burn rate, it still has $21.6 billion in liquidity and took steps to lower operating costs, such as reducing its airplane orders by $5 billion over the next two years.

This gives makes it leaner and gives it the breathing room it needs to weather a slow recovery. Let’s talk about why that recovery is expected to be lethargic.

Alaska Airlines War Chest Isn’t Big 

Alaska Airlines is smaller than its competition, which works both for and against it. It has less of a war chest to work with, but it also takes smaller hits from major incidents, like the coronavirus shutdown.

This could handicap it against bigger competitors like Delta, as marketing will be crucial in jockeying for a piece of a smaller crowd of passengers.

The company needs to maintain its fleet and continue operating while taking on the extra burden of government debt. Granted, it’s low interest, but it’s still debt that needs to be paid back and will take away from potential returns for investors. Of course, Delta has a similar problem.

Dangers Of Investing In Delta

Delta also needs to depend on people traveling more. It wants all of us to get out the house as much as you want to go.

But a slow economy and pandemic fear combine to bottleneck travel demand. If the market shrinks, smaller airlines like Southwest are more likely to go bankrupt. Delta isn’t immune though.

Its frequent flier program also exposes it to problems plaguing the hospitality industry. Delta is prepared with a runway through 2022, but if travel doesn’t pick back up after that, it’ll be in big trouble.

Delta Vs Alaska Airlines Stock: The Bottom Line

Both Delta and Alaska Airlines were grounded by the coronavirus pandemic. They reacted immediately by addressing the social distancing guidelines and adjusting their operations to respond to a new way of living.

As the coronavirus vaccine was announced with the election results, travel outlooks got brighter. It’s only a matter of time before the economy returns to normal. The only question is what that new normal will look like.

Passenger demand ultimately rules the day, and the airline industry is bracing for a slow crawl back to pre-pandemic flight numbers. Delta is better prepared for the challenges that lie ahead, but Alaska Air Lines has more growth potential. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.