Alaska Airlines’ cargo revenue up 10.3% in first quarter

Alaska Air Group , which operates Alaska Airlines , today reported a record $2.2 billion in operating revenue for the first quarter of 2024, an increase of 1.6% from the first quarter of 2023. The carrier reported a 10.3% year-over-year increase in “cargo and other revenue” to $64 million. [caption id="attachment_57139805" align="alignright" width="300"] A plastic sheet covers an area of the fuselage of the Alaska Airlines Boeing 737 Max 9 aircraft forced to land after a door partially blew off. (Photo/Bloomberg)[/caption] THE BIG PICTURE: Unlike most carriers, which have reported decreased cargo revenue for more than a year, Alaska Airlines has reported cargo revenue growth for the second quarter in a row. The carrier reported a 7% YoY decrease in cargo and other revenue in Q3 2023 but recovered with a 7% YoY increase in cargo and other revenue in Q4. Despite decreased cargo revenues, many airlines have reported record operating revenues due to the recovery of passenger travel post-pandemic. However, Alaska’s passenger revenue increased by just 1% YoY in Q1. BY THE NUMBERS: Alaska Airlines reported a net loss of $132 million, or $1.05 per share, in Q1, compared with a net loss of $142 million, or $1.11 per share, for Q1 2023. Also in Q1: The carrier repurchased 561,086 shares of common stock for approximately $21 million; Alaska Airlines generated $292 million in operating cash flow; and The company ended the quarter with a debt-to-capitalization ratio of 47%, within the carrier’s target range of 40% to 50%. WHAT THEY’RE SAYING: Alaska executives stressed on today’s earnings call that the carrier’s Q1 earnings and operations were significantly impacted by the fallout from the Flight 1282 incident. A door partially blew off midflight on a Boeing 737 Max 9 operated by Alaska Airlines, forcing an emergency landing. The FAA grounded the carrier’s 65 B737 Max 9 aircraft following the incident. The planes, which account for about one-third of the carrier’s fleet, remained grounded for about four weeks, according to Alaska. “This event also had a substantial financial impact, totaling $162 million, which Boeing has fully compensated us for,” Chief Executive Ben Minicucci said on the earnings call. The Max 9 groundings brought the carrier’s capacity down by about 5.5 percentage points, leaving its Q1 capacity down 2.1% YoY, according to Chief Commercial Officer Andrew Harrison . “Absent the grounding, capacity would have been up approximately 3.5%, a level we feel was appropriate for the Q1 environment,” Harrison said on the call. United Airlines reported yesterday that the grounding of its 79 Max 9s caused a financial impact of about $200 million. Following the Max 9 grounding, the FAA opened a formal investigation into Boeing’s production line and suppliers. Alaska’s Max 9s were returned to service in February following safety inspections. The carrier has also enhanced its quality oversight program at the Boeing production facility, according to the earnings report. “We remain committed partners that will hold Boeing to the highest bar for quality out of the factory,” Minicucci said. “To that end, we have enhanced our in-person oversight of our 737 production line and are regularly engaging with Boeing leadership on quality and schedule. Alaska needs Boeing. Our industry needs Boeing. And our country needs Boeing to be a leader in airplane manufacturing.” STATE OF PLAY: Alaska executives noted that fuel prices per gallon on the West Coast were $3.08 in Q1, compared with spot rates ranging from $2.66 to $2.78 on the U.S. Gulf Coast in Q1. “West Coast refining margins continued to be a unique margin headwind to our results relative to the rest of the country,” Chief Financial Officer Shane Tackett said on the call. To combat this disparity, Alaska discontinued its fuel hedging program, “given refining margins have become the more volatile component of fuel costs, which hedging did not protect us from,” Tackett said. The carrier is also likely to initiate a program to self-supply a modest amount of fuel later this year and into 2025, Tackett said. “We expect economic fuel cost per gallon to be between $3 and $3.20 for the second quarter and expect refining margins on the West Coast to be more in line with Gulf Coast, which we’ve seen the past several weeks,” he said. “Despite a likely 35-cent year-over-year headwind from fuel, we have visibility to a path back to healthy double-digit margins in the second quarter.” NOTEWORTHY: Alaska Airlines announced in December that it would acquire Hawaiian Airlines for $1.9 billion, including $900 million in debt. The agreement was approved by Alaska and Hawaiian shareholders but still requires regulatory approval. Some analysts have questioned whether the deal will go through after a judge blocked the merger between JetBlue Airways and Spirit Airlines on antitrust grounds in January. Nevertheless, Alaska remains intent on pursuing the merger. “During the quarter, we also received a second request for information from the [ Department of Justice ] regarding our proposed acquisition of Hawaiian Airlines,” Minicucci said. “We are working to respond to these requests as quickly as possible. Given the substantial volume of information involved, we have granted the government an additional 60 days to review our responses and we’ll continue to work with them to advance the process as swiftly as possible. “We still believe strongly in the pro-consumer and pro-competitive merits of this deal and are excited by the opportunities this will unlock for Alaska both domestically and internationally,” he said. FUTURE LOOK: Alaska expects earnings per share in Q2 to be between $2.20 and $2.40 and earnings per share for full-year 2024 to be between $3.25 and $5.25. “This year we have seen a more normalized yield and booking curve building in strength, [a] trend we expect should persist,” Harrison said. “The back half of the year looks to be shaping up well.” MARKET REACTION: Shares of Alaska Air Group ( NYSE: ALK ) were up 4.03% from market open to $44.44 as of market close today. The company has a market capitalization of $5.6 billion.

Alaska Airlines’ cargo revenue up 10.3% in first quarter

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