Alaska Air Group sees cargo revenue fall 7%

Alaska Air Group on Thursday reported third-quarter revenue of $2.8 billion, a year-over-year improvement of 0.4%. Cargo and other revenues decreased 7% YoY to $62 million. [caption id="attachment_57131921" align="alignright" width="300"] Photo / Alaska Air Cargo[/caption] THE BIG PICTURE : Alaska’s earnings follows a trend seen by other major carriers alongside market trends throughout 2023. The airline’s leaders are confident in its business strategy as the market continues to normalize, though Alaska does not believe it will return to 2019 profitability for “a couple more years,” Shane Tackett , executive vice president and chief financial officer at Alaska Air Group, said during Thursday’s earnings call. BY THE NUMBERS: The airline reported an adjusted net income of $237 million for the quarter. Additionally, in Q3, Alaska Air: Generated $271 million in operating cash; Ended the quarter with a debt-to-capitalization ratio of 48%, within the target range of 40% to 50%; and Reported cargo revenue for the first nine months of 2023 at $190 million, flat YoY. While revenues did not perform as expected, Alaska was able to reduce unit costs in a “volatile market,” Alaska Air Group President and Chief Executive Ben Minicucci said during the call. “ We drove unit cost down nearly 5% year over year , a strong performance that stands alone versus our peers and achieving year-over-year unit cost reductions,” Minicucci said. “And our 11.4% adjusted pre-tax margin nearly led the industry despite our lower direct exposure to record international demand, as well as significant fuel cost headwinds given our geographic exposure to the West Coast.” WHAT THEY’RE SAYING: Cargo operations are continuing to grow as the airline implements new technologies, freighters and expanded capacity, an Alaska spokesperson told Air Cargo Next . “We’re implementing a new cargo management system that will modernize our operation, launching this month,” the spokesperson said in an email. “Second, we’re expanding our freighter fleet with the addition of two new Boeing 737-800BCF freighters, the first of which arrives in early November and the second in February 2024.” STATE OF PLAY: Wildfires in Maui and an increase in fuel pricing hit Alaska hard, increasing operating costs and reducing overall profit. “The devastating Maui wildfires impacted third-quarter revenue and therefore profit by approximately $20 million,” Minicucci said. “For reference, Hawaii represents nearly 12% of our capacity, with one-third of that deployed to Maui. Following the wildfires in early August, bookings turned negative with high rates of cancellation. This reversed at the end of August, as bookings to Maui began recovering. However, September bookings were still down 45% versus last year.” “Economic fuel cost per gallon was $3.26, which wasn’t materially impacted by refining margins on the West Coast,” Tackett said during the call. “The average is 30 cents higher than the rest of the country, which we believe will prove to be an anomaly, but materially impacted our performance relative to others.” NOTEWORTHY: The carrier is experiencing the end of an era as it retires its Airbus fleet. “We crossed a significant milestone to end the third quarter as we retired our last Airbus from service and in wrapping up our Airbus era,” Minicucci said during the call. “We announced this morning that we reached an agreement to sell the two A-321s to our partner American Airlines and expect deliveries to occur over the next two quarters.” Alaska Air Group declined to disclose the value of the aircraft sale, and Alaska’s fleet will comprise Boeing aircraft only following the sale. THE BOTTOM LINE: Despite significant challenges linked to fuel costs and wildfires in Maui, Alaska plans to follow its business strategy and lay the groundwork for a profitable 2024. “Absent this refining margin differential, or the $20 million of lost profit due to the tragedy in Maui, Alaska would have led the industry in margin despite not enjoying the current surge in international demand or a further rebound of corporate traffic,” CFO Tackett said during the call. “Our balance sheet and liquidity, longtime pillars of strength for us through many cycles, remain stable and healthy,” he added. “We generated approximately $270 million in cash flow from operations during the quarter, while total liquidity inclusive of on-hand cash and undrawn lines of credit stood at a healthy $3 billion.” MARKET OUTLOOK : Shares of Alaska Air Group [NASDAQ:ALK] dropped .01% from market open to $31.98 at market close today. Alaska has a market capitalization of $4.1 billion.

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