Why Alaska Air Blasted Higher Today

Shares of Alaska Air Group (NYSE: ALK) rallied as much as 17.9% on Tuesday, before settling into a 13.1% gain as of 12:26 p.m. ET.

Alaska has been the rare outperforming airline stock, up 45% over the past year, with shares receiving another jolt today as the company outlined its medium-term financial targets following the acquisition of Hawaiian Airlines in September.

Profits set to soar?

Alaska released a press release ahead of its 2024 Investor Day today, in which the company outlined how it would benefit from the recent acquisition of Hawaiian Airlines. Alaska acquired Hawaiian in a $1.9 billion all-stock deal back in September, its latest consolidation move following the acquisition of Virgin Airlines back in late 2016.

Scale is key in the airline industry, and Alaska projects a lot of benefits from the tie-up. Today, the company doubled its projected cost synergies from the deal to $500 million, or over 25% of the entire purchase price, which would make the acquisition highly accretive should the company hit that target.

Those synergies are projected to drive earnings growth along with Alaska's growth initiatives to offer nonstop flights to Tokyo and Seoul in 2025, while also putting in more premium seats per plane. Additionally, Alaska sees a cargo flight opportunity on these new Asia routes.

All in all, management projects an additional $1 billion in operating profit by 2027 and at least $10 per share in earnings, up from the projected $5.75 in EPS projected for 2025.

Alaska looks solid

In the wake of Spirit Airlines' bankruptcy, the remaining players may all benefit, including Alaska Air. As we saw in Spirit's demise, it suffered from a lack of scale after its own merger was blocked. But with Alaska and Hawaiian now combined into a more formidable competitor to the big four, investors should reap the benefits going forward.

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Billy Duberstein and/or his clients has no position in any of the stocks mentioned. The Motley Fool recommends Alaska Air Group. The Motley Fool has a disclosure policy.