Barclays: Acquisition of Hawaiian Airlines by Alaska Airlines (ALK.US) to Drive Significant Earnings Growth, Upgrade to "Overweight"
1min read Barclays analyst Brandon Oglenski says that now that Alaska Airlines (ALK.US) has completed its merger with Hawaiian Airlines, the airline is a "strong West Coast franchise" with industry-leading profitability and a competitive advantage as Southwest Airlines (LUV.US) reduces its Hawaii market flights.
Oglenski says that the Alaska-Hawaiian merger could support meaningful profit growth in the coming years as Alaska's forward-looking management team realizes cost and revenue synergies and incorporates the airline's low-cost business model into Hawaiian's operations.
Alaska's management originally targeted $215 million in revenue and $20 million in cost synergies, but recently suggested upside to those early estimates. Oglenski at Barclays believes the complementary route networks will drive meaningful expansion and create new connections in the combined network, including new routes from West Coast markets to Honolulu.
Fleet optimization will also save costs as the combined airline transitions to an all-Boeing (BA.US) narrow-body fleet, allowing for more efficient network scheduling, crew training and maintenance plans.
Despite the challenges of airline mergers, Oglenski believes Alaska's management will learn from its 2016 acquisition of Virgin America and lower integration risk.
Oglenski reiterates an "Overweight" rating and $55 price target on Alaska Airlines.
