Alaska Airlines starting to spend its record profits

  • An Alaska Airlines Boeing 737-800 painted with the airline’s new tail logo and livery takes off Jan. 26 at Seattle-Tacoma International Airport in Seattle. The parent company Alaska Air Group has recorded six years of record profits and is starting to spend some of that income, with its biggest move so far the April 4 announcement it is acquiring Virgin America in a $4 billion deal. Photo/Ted S. Warren/AP

Alaska Airlines keeps making news, seemingly for all the right reasons.

The company announced a $4 billion deal to purchase Virgin America April 4, a deal that when finalized will make Alaska the fifth largest domestic carrier.

Spokesman Tim Thompson said to Anchorage Chamber of Commerce members April 11 that Alaska will “leapfrog” JetBlue — the airline Alaska reportedly outbid to buy Virgin — to take over the spot as the fifth-largest U.S. airline.

Specifically, the deal breaks down to $2.6 billion in cash and Alaska Air Group Inc. will assume roughly $1.5 billion in Virgin debt.

Seattle-based Alaska Air Group is the parent company to Alaska Airlines and its regional carrier Horizon Air.

Alaska Airlines leaders have emphasized the deal will solidify the company’s stronghold on the West Coast, with Virgin being headquartered in San Francisco.

Thompson said Virgin’s network out of San Francisco and Los Angeles will also give Alaska more “east-west connectivity” to the mid-Atlantic seaboard, adding to Alaska’s traditionally north-south routes along the West Coast.

The state of Alaska currently accounts for about 20 percent of the airline’s overall market share.

When the deal closes, which is expected by the end of the year, the combined airline will have about $7 billion in annual revenue, a fleet of more than 280 aircraft and 18,000 employees.

Alaska Airlines will have two years to decide whether to keep the Airbus fleet operated by Virgin, with possibly of returning 31 leased aircraft by 2021. Virgin’s order for 40 Airbus A320neos reportedly has favorable cancellation provisions.

In January, Alaska Air Group announced its sixth consecutive record annual profit. The reported $842 million 2015 net income was a 47 percent improvement over 2014.

Air Group CEO Brad Tilden said at the time that while low fuel prices for going on two years now have greatly benefited the airline industry as a whole, Alaska Airlines performance is based on operational reliability and efficiency and customer growth and satisfaction.

At the end of 2015, Air Group’s debt-to-capitalization ratio stood at 27 percent. A corporate emphasis to reduce the company’s debt load, before the Virgin purchase, has significantly cut its debt-to-cap ratio, which was as high as 81 percent as recently as 2009.

Alaska Air Group’s first quarter 2016 earnings call is scheduled for April 21.

Air Group stock closed April 12 trading at $79.25 per share, up 25 percent over the past year. The company has split its stock twice since March 2012.

Alaska Airlines is also in the midst of updating its branding for the first time in nearly 25 years. The look of its aircraft and the recognizable Eskimo tail logo are largely staying the same, with refinements coming to typeface and a new-look website.

In March, Alaska Airlines also applied to the U.S. Department of Transportation for license to fly to Cuba, proposing twice daily, nonstop service between Los Angeles and Havana.

Horizon Air announced April 12 that it plans to purchase 30 new Embraer E175 jets that will be delivered from 2017 to 2020. The total order includes 33 options and is valued at $2.8 billion.

The 76-seat E175s will fly routes for Alaska Airlines that are too long for Horizon’s fleet of Bombardier Q400 turboprops but don’t have the demand to necessitate mainliner service, according to a company release.

Horizon currently services Alaska Airlines routes between Fairbanks, Anchorage and Kodiak with its Q400s.

“The E175s position Horizon for growth beyond our current West Coast destinations while providing better customer utility in the growing Alaska Airlines network,” Horizon President David Campbell said in a release. “The spacious E175 offers a passenger experience that’s on par with much larger jets. This aircraft opens up tremendous new opportunities to fly to places that would not have been feasible with our existing aircraft.”

Alaska Airlines also has plans to spend nearly $100 million just in, and for, Alaska over the next couple years.

The airline is in the early planning stages of building a new, $50 million maintenance hangar at Ted Stevens Anchorage International Airport to accommodate Boeing’s latest 737-900s.

The new hangar will fit two of the largest 737s, according to Alaska spokesman Thompson.

Alaska is also decommissioning its five-plane, freighter-passenger “combi” fleet flown primarily to rural parts of the state. The combis and one dedicated 737-400 freighter will be swapped out for three all-freight 373-700s. The three larger 737-700s will add about 20 percent more cargo capacity to the small Alaska freighter fleet, Thompson said.

Finally, it is investing about $30 million in its 11 rural Alaska terminals over the next three years. Thompson said expanding the footprints of the terminals mostly built before 2001 will provide more space for Transportation Security Administration officials as well as a better customer experience. Barrow, Kotzebue and Kodiak are the first terminals on the to-do list.

 

Elwood Brehmer can be reached at [email protected].

 

Updated: 
04/22/2016 - 12:52pm