Alaska Air Group starts 2014 with another record profit
Alaska Air Group Inc. is on a major roll. The airline company announced it earned $94 million of first quarter net income in its earnings report April 25.
The quarterly profit more than doubled the $37 million of net earnings from quarter-one of 2013 — also a record at the time — and marks the company’s 20th consecutive money-making quarter, and it’s seventh record quarterly return over the eight quarters.
Seattle-based Alaska Air Group is the parent to Alaska Airlines and regional carrier Horizon Air.
The company’s adjusted first quarter net income was $89 million after a $5 million fuel-hedge hit to its $94 million generally accepted accounting principle, or GAAP, profit.
Broken down, the $94 million profit is $1.35 per share. Alaska Air Group shares traded at $93.37 on the New York Stock Exchange at the end of business April 28, up more than 27 percent for the year.
The profit spike was on the back of $249 million of operating cash flow generated during the quarter, up 17.4 percent from $212 million year-over-year.
Alaska Air Group President and CEO Brad Tilden said in a conference call with investors that the first quarter result would be strong for any quarter and is particularly remarkable because of when it came.
“It wasn’t that many years ago that we created an objective of simply not losing money in the first quarter,” Tilden said. “Our business, like a lot of other airlines, (has) been very seasonal and, unfortunately, we have become used to digging the hole in the first quarter that we would have to dig our way out of in the second and third quarters.”
The record first quarter comes on the heels of a record $383 million full-year 2013, which followed a record-breaking profitable 2012 for Alaska Air Group.
It’s 12-month trailing return on invested capital, or ROIC, was a strong 14.8 percent at the end of March and a 1.4 percent improvement over the previous running year, said Brandon Pederson, company vice president of finance and chief financial officer.
Alaska Air Group ended the quarter with $1.4 billion in cash and near-term investments, Pederson said.
Total revenue grew by 8 percent on a 4.6 percent increase in capacity. The company’s non-fuel operating expenses grew 5 percent, while adjusted fuel expenditures were about flat, he said.
At the end of quarter-one Alaska Air Group had an adjusted debt-to-capitalization ratio of 32 percent, down from 35 percent at the start of the year, and $400 million in net cash, according to Pederson.
The debt reduction is the continuation of a philosophy company executives have pushed since early 2009 when its “debt-to-cap” ratio was 81 percent, Pederson has told the Journal.
Tilden said to investors that Standard and Poor’s, which recently increased the company’s credit rating to BB+, also recently commented that Alaska Airlines, which drives Air Group financials, has the “strongest financial profile of any U.S. airline.”
Alaska Air Group repurchased about 350,000 shares of stock totaling about $30 million during the first quarter, Pederson said. The company expects to return about $350 million to shareholders this year through dividends and stock repurchase plans, he added.
Alaska Air Group began paying 20-cent per share quarterly dividends to shareholders last August; that amount has since been increased to 25 cents per share.
With quarter-one giving the company a strong financial start to the year, Pederson said capital expenditures should be in the range of $530 million to $545 million in 2014. The company spent $93 million on capital projects in the first quarter, resulting in $156 million of free cash flow, he said.
“Even though our mainline fleet will only increase by three units this year, we are actually taking 10 very efficient (Boeing) 373-900ERs and retiring seven older and smaller aircraft, further improving our fleet’s efficiency,” he said.
Alaska Airlines operates Boeing 737s exclusively and Horizon Air flies only Bombardier Q400 turboprops.
Near-term business will focus on retaining Alaska Airlines’ hold on Pacific Northwest market, specifically Seattle, Tilden said. To that end, new capacity will be reallocated to new seasonal routes originating from Seattle including Tampa, Detroit, New Orleans and Baltimore, he said.
The airline will pull out of “underperforming markets,” such as Portland, Ore.-Atlanta and Los Angeles-San Jose, Cali., according to Tilden.
“We are mindful of the growing capacity in Seattle, specifically from one large carrier,” he said. “We believe our competitors’ actions are creating a surplus of capacity in many of the markets we serve, which we will be dealing with until supply and demand come back into balance, which is something we do believe will happen.”
Delta Airlines has added Seattle routes in recent months, including some to Alaska destinations, moves that have strained what had been a seemingly healthy partnership between Alaska Airlines and Delta in the past.
Pederson said the company expects competitive capacity in Alaska Airlines’ markets to grow between 7-8 percent for the year.
On the internal business side, Tilden said Alaska Air Group has a strong foundation with all of its union employees except Alaska Airlines flight attendants under contract through 2018.
The large carrier flight attendants recently rejected a tentative contract agreement earlier this year.
“I want to thank our flight attendants for being very professional and for continuing to provide great service to our customers as we proceed through the negotiating process,” Tilden said.
Elwood Brehmer can be reached at email@example.com.