Alaska Air Group posts record income for third quarter
Alaska Air Group Inc. announced a net income of $289 million in the third quarter — the largest overall in company history — in its Oct. 24 earnings report.
The quarter continued a long run of strong financials for the Seattle-based company that operates Alaska Airlines and regional carrier Horizon Air.
In a conference call with investors, Alaska Air Group CEO Brad Tilden said it was the 18th consecutive quarterly profit for the company.
The good run comes despite new competition into some of Alaska Airlines’ core West Coast markets by discount airlines such as Virgin America and Jet Blue.
“The balance and strength of our network combined with the ability of our people to respond quickly to changing business conditions are enabling us to succeed in this highly competitive industry,” Tilden said.
The $289 million in generally accepted accounting principles, or GAAP, net income equates to $2.21 per share and is a 44 percent year-over-year improvement. Alaska Air Group reported a $163 million of third quarter income in 2012, also a record at the time.
Alaska Air Group had $1.55 billion in operating revenue during the latest quarter. It’s return on invested capital, or ROIC, for the 12-month period ending Sept. 30 hit 13 percent, up from 12.7 percent over the previous year. Tilden said 2013 should be finish as the fourth consecutive year the company achieves a 10 percent after-tax ROIC.
That revenue led to an 18.4 percent pre-tax profit, a figure that Tilden said he believes “will be one of the highest margins in the industry.”
Through the first nine months of 2013 the company has earned $820 million in operating cash flow, up from $638 million in 2012, or a 22 percent year-over-year gain.
Between Horizon and Alaska Air, the company had a 7 percent year-over-year increase in capacity during the third quarter, Vice President And Chief Financial Officer Brandon Pedersen said.
During the quarter, Alaska Airlines added routes between Portland, Ore., and Atlanta, and between Portland and Dallas.
The record earnings report is due in large part to Alaska Air Group’s push to pay down debt, Tilden said. Over the first nine months of the year it has paid down $139 million in long-term debt and lowered its debt-to-capital ratio by 7 percent since the end of 2012 to 47 percent. As recently as 2004, the company held 78 percent debt-capital ration.
“As we sit here today we have essentially no net debt,” Tilden said. “We have $1.4 billion in the bank; we have 46 unencumbered (Boeing) 737s and our pensions are almost fully funded.”
Alaska Air Group also saw a 4 percent increase in productivity in the third quarter, a metric it measures on a passenger per employee basis, Pedersen said.
The company also repurchased 537,000 shares of stock for $32 million during the quarter, bringing the total repurchase amount for 2013 to 1.45 million shares for $83 million. Pedersen said they are on track to compete their $250 million stock repurchase program by the end of 2014.
As of the morning of Oct. 30, Alaska Air Group’s stock was trading at $69.06 on the New York Stock Exchange.
Looking ahead, Tilden said Alaska Air Group’s the executive team expects to report record full-year results for 2013 when the numbers are final in January, as it did for 2012.
Additionally, Pedersen said the company expects capacity to grow by just less than 5 percent in the fourth quarter, and by just more than 5 percent in 2014. The upward trend in capacity will be driven less by additional routes and more by replacing old 737s with new and larger 737-800s and 900s along with installing new seats in existing planes that use less space, allowing for up to six more passengers per plane, he said.
The capital cost of the seat change will total $150 million when it is completed next year and when combined with technology investments, benefit payments and wage increases, will make for slightly higher operating expenses in the coming year, according to Pedersen.
The wage increases are primarily a result of a new agreement Alaska Airlines made with its pilots’ union earlier this year.
Despite the increase in some costs, Alaska Air Group has been able to stem one of the largest costs for all airlines — fuel costs. Alaska Airlines was named the most fuel-efficient major carrier by the International Council on Clean Transportation in the third quarter.
“Our goal is to be the industry leader in environmental stewardship,” Tilden said. “Fuel efficiency is not only important in protecting the environment, but also in protecting our bottom line.”
Alaska Airlines was also first in on-time performance among the 10 largest domestic carriers for the year that ended Aug. 30, according to the U.S. Department of Transportation.
Elwood Brehmer can be reached at firstname.lastname@example.org.