Alaska Air continues run with $149M record quarter

Photo/Mark Thiessen/AP

Growth, efficient operations and lower fuel prices helped Alaska Air Group Inc. turn a record profit of $149 million in the first quarter, the company announced April 23.

The strong early 2015 results mark the 11th record quarter of the last 12 for the Seattle-based parent company of Alaska Airlines and its regional carrier Horizon Air.

In January, Alaska Air Group reported its fifth consecutive record-breaking year with a total 2014 profit of $571 million.

“We’re performing as well on many fronts, and our people are as focused on providing great service to our customers as I’ve ever seen,” Air Group CEO Brad Tilden said in a call with investors. “Thanks to their efforts, we’re off to a great start this year and this should set us up very well for the rest of 2015.”

The $149 million net income is a 58 percent increase over a year ago. It came on 4 percent operating revenue growth to $1.27 billion. Alaska Airlines managed 6 percent revenue growth while Horizon’s revenue remained flat for the quarter, according to the financial report.

The earnings equate to $1.13 per share. An intense share repurchase program — 1.2 percent of outstanding shares worth $102 million during the quarter — helped grow the earnings-per-share value by 75 percent year-over-year, Tilden said.

The company has repurchased 31 percent of its outstanding shares since 2007, he said.

Alaska Air Group stock traded for $68.30 at the close of business April 24. The stock price has risen about 45 percent since a June two-for-one stock split. It began 2015 at about $60 per share.

Company-wide capacity was up 10.8 percent compared with the first part of 2014, according to its March operational results.

Tilden said 40 percent of company’s revenue and profit over the last 12 months has come from markets it didn’t serve in 2000.

Chief Revenue Officer Andrew Harrison said Alaska Airlines continues to add capacity to its home Seattle market to give “customers more utility and maintain schedule superiority versus the competition.”

Increased competition for the Pacific Northwest market over the past two years has come primarily from its longtime partner Delta Air Lines.

Overall capacity growth is currently planned at 12 percent in the second quarter and 7 percent in the third quarter, Harrison said.

Pre-tax operating income was up 69 percent on the back of $123 million in fuel savings, despite a 13 percent increase in personnel costs. Part of the added wage cost includes a new agreement with Alaska Airlines flight attendants, company Chief Financial Officer Brandon Pedersen noted.

Alaska Air Group hedges fuel through call options; Pedersen said company executives feel it provides the best balance between mitigating the impact of price spikes and realizing low fuel price savings.

The company’s economic fuel price per gallon was $1.98 for the quarter, down more than 40 percent year-over-year.

The benefits of lower oil prices have not been exclusive to Alaska Air Group’s carriers. Industry giants American Airlines and United Airlines also had record profits in quarter one despite slight dips in revenue. The Associated Press reported April 24 that those airlines each saved more than $1 billion on fuel versus 2014.

Pedersen also referred to Alaska Airlines’ fleet transition from away from Boeing 737-400s to more efficient 737-800s and -900s as a “permanent hedge.” Alaska improved its fuel burn-to-capacity ratio by 3 percent during the quarter, he said.

A 20.1 percent 12-month return on invested capital, or ROIC, was about 12 higher than Air Group’s cost of capital and an 18.9 percent pretax margin was a 7 percent improvement on the first quarter of 2014.

Underlying its historically strong financial run is Alaska Air Group’s emphasis on reducing debt.

Its debt-to-capitalization ratio stood at 29 percent at the end of the quarter, down from more than 60 percent less than four years ago. As a result, operational cash flow totaled about $500 million for the first quarter, roughly equivalent to all of 2010, according to Pedersen.

Alaska Airlines was once again the top on-time performer among major domestic carriers with an 85 percent on-time rate during the quarter, according to the U.S. Department of Transportation. However, its on-time performance was down 2.1 percent from 2014.

Alaska Air Group was also named as one of Forbes magazine’s top 100 domestic employers in April. Air Group was 93 on the list and third among major airlines behind Southwest Airlines and JetBlue Airways.

Elwood Brehmer can be reached at [email protected].

11/20/2016 - 8:45am