Alaska Air Group Inc. reports another record third quarter
Alaska Air Group Inc. continued its impressive run in the third quarter, posting a record $277 million profit.
The Seattle-based parent company to Alaska Airlines and regional carrier Horizon Air released its third quarter results Oct. 22.
When combined with a record $230 million second quarter profit, Alaska Air Group took home more than $600 million this spring and summer. The company’s balance sheet for all of 2014 ended with a record net income of $571 million, meaning 2015 is a virtual lock to be Alaska Air Group’s sixth consecutive year of record profits.
“We not only have strong profitability, but also excellent cash flow from operations, an extremely strong balance sheet and a commitment to shareholder-friendly stewardship and capital allocation that’s been demonstrated over many years now,” Air Group CEO Brad Tilden said during an earnings report call.
The $277 million adjusted third quarter net income was a 39 percent year-over-year increase. Quarterly earnings totaled $2.16 per diluted share, up 47 percent from a year ago. Alaska Air Group stock traded for $77.96 at the close of trading Oct. 27, up more than 50 percent from a year ago.
Company leadership has attributed strong returns in recent years to a business model focused on operational efficiencies and paying down debt. Alaska Air Group had a 27 percent debt-to-capitalization ratio at the end of the quarter.
“We’re building a high-quality business,” Alaska Air Group CFO Brandon Pedersen said.
However, the significant increase in profitability this year is thanks in large part to low fuel prices.
Alaska Air’s third quarter operating revenue was up 3 percent and year-to-date revenue grew 4 percent over 2014. At the same time, fuel expense was down 38 percent for the quarter and 33 percent for the first nine months of 2015.
The company’s airlines paid, on average, $1.82 per gallon for jet fuel in the third quarter, down 42 percent, according to Pedersen.
Fuel is typically an airline’s single largest operating expense. Company growth and low-cost fuel have combined to make wages and benefits the single most expensive line item on Alaska Air Group’s balance sheet for the quarter and the year-to-date.
Additionally, new planes have improved Alaska Airlines’ fuel burn. The mainline fleet of Boeing 737s was 2.9 percent more fuel efficient on an available seat mile per gallon basis, Pedersen said.
“This will just continue to get better as we retire our 737-400 fleet over the next two years,” he said.
Alaska Airlines is scheduled to take delivery of 34 new 737-900s by the end of 2017, but its fleet will only grow by nine aircraft as its older, smaller 737-400s are retired. Alaska Air will also get one of Boeing’s latest aircraft designs, a 737 MAX, in 2017.
“The Boeing 737 is a fabulous airplane for our network; Boeing is a great company to work with and our partnership with them could not be stronger,” Pedersen said.
He said previously in an interview with the Journal that Alaska Airlines’ decision to exclusively fly 737s leads to numerous operational efficiencies in terms of maintenance and employee training.
Air Group’s 24.2 percent 12-month return on invested capital was a 7 percent improvement over the year that ended Sept. 30, 2014; its record 29.2 percent pretax margin for the quarter was more than a 7 percent increase over last year.
Contributing to the per-share earnings growth was the repurchase of 1.6 million shares for $119 million in the third quarter. Alaska Air Group bought back 4.5 percent of its outstanding common stock for $381 million in the first nine months of this year, continuing its multi-year repurchase program.
Alaska Air Group employees earned $90 million of incentive pay during the quarter as well, recognition of meeting customer service, safety, operational and financial goals, according to a company statement.
Alaska Airlines continued its hold on the top spot for on-time performance among major domestic carriers for the 12 moths ending in August. Through the first three quarters of the year, 86.7 percent of Alaska Airlines flights were on time, off 0.3 percent from 2014.
J.D. Power also named Alaska Airlines Highest in Customer Satisfaction Among Traditional Carriers for the eighth consecutive year, according to a company release.
Elwood Brehmer can be reached at [email protected].