Alaska Air does it again with record $842M profit in 2015

  • Alaska Airlines CEO Brad Tilden, center, prepares to launch a t-shirt to employees during an event to unveil the airline’s new logo and livery on Jan. 25 in Seattle. Employees will share in the company’s record profits with an estimated $120 million to be paid out this year. Photo/Ted S. Warren/AP

The State of Alaska might be rubbing pennies together, but its namesake airline is not.

Alaska Airlines’ parent company, Alaska Air Group Inc., once again posted record fourth quarter and full-year earnings in 2015.

Alaska Air Group executives reported a $186 million fourth quarter profit and a 2015 net income of $842 million in a Jan. 21 investor conference call.

The quarterly profit is a 49 percent year-over-year improvement and the full-year return is 47 percent better than 2014.

Many domestic carriers have seen profits grow as fuel costs have fallen over the last six quarters; however, Alaska Air Group’s strong performance, led by Alaska Airlines, has withstood high fuel prices as well. The company has now posted six consecutive years of record profitability.

Seattle-based Alaska Air Group also owns Horizon Air, a regional carrier that serves Kodiak, Anchorage and Fairbanks.

“While every airline has benefited from low fuel prices, Alaska led the industry in many of the underlying drivers of financial performance: areas like operation reliability, customer satisfaction, customer growth, and low fares-low cost,” Air Group CEO Brad Tilden said during the investor call.

Alaska’s average fuel cost was $1.88 per gallon in 2015, down 39 percent from $3.08 per gallon a year prior.

Tilden noted that markets constituting 95 percent of Alaska Air Group’s revenue would still be profitable at fuel prices of $3 per gallon. Fuel can account for up to a third of a major airline’s operating cost at higher prices.

Flight capacity increased 10.6 percent for the year with the addition of 20 new markets in 2015, primarily on the back of 10.7 percent capacity growth by Alaska Airlines. That led to a 33 percent decrease in actual fuel cost.

Consolidated yearly revenue was nearly $5.6 billion, up 4 percent from 2014, while total operating expenses fell 2 percent. At $1.3 billion, Air Group’s pretax income was up 35 percent.

Air Group also used its strong year to buy back 5.5 percent of its outstanding stock. Since 2007, the company has repurchased 35 percent of its stock, according to Chief Financial Officer Brandon Pedersen.

The $842 million full-year profit translated to adjusted earnings of $6.51 of per share, a 56 percent increase over 2014.

Alaska Air Group stock sold on the New York Stock Exchange for $72.60 per share at the close of trading Jan. 21.

The company also announced on Jan. 21 a 27.5-cent per share quarterly dividend that will be paid March 8. It paid a 20-cent per share dividend in the fourth quarter of 2014.

Pedersen said non-fuel operating costs declined 1.3 percent in the fourth quarter and 0.8 percent for the year.

“We recognize that low fuel prices will probably not last forever, so we remain focused on creating a permanent, sustainable advantage by lowering nonfuel unit costs and increasing the fuel efficiency of our fleet,” Pedersen said.

Alaska Airlines is in the midst of phasing out older, Boeing 737-400s over several years and replacing them with newer, more efficient 737s.

Air Group’s fuel burn improved 2 percent per available seat mile in 2015, Pedersen said. That led to an 8.3 percent increase in overall fuel consumption despite the 10.6 percent increase in capacity.

Alaska Air Group continued to pay down debt in 2015. At the end of the year its debt-to-capitalization ratio stood at 27 percent, leaving the company in a $300 million net cash position with $686 million in outstanding long-term debt, according to Pedersen. The median debt-to-cap ratio for S&P 500 companies is 45 percent, he noted.

“Alaska (Airlines) remains one of only two U.S. airlines to have an investment grade balance sheet,” Pedersen said. The other is Southwest Airlines.

Tilden said Air Group’s return on invested capital, or ROIC, was 25.2 percent for the year, up from 13 percent in 2012. He added that the company’s 15,000 employees will share in the record year through $120 million in bonuses expected to be paid this year.

01/27/2016 - 3:38pm