Alaska Air betting on summer vacation recovery after $1.3B loss in ‘20

  • A Boeing 737 MAX-9 built for Alaska Airlines undergoes testing as it flies past the Boeing factory in Everett Wash., on March 23, 2020. (Photo/Mike Siegel/The Seattle Times via Tribune News Service)

The gradual recovery of Alaska Air Group’s business stalled last fall following the pre-holidays surge in COVID-19 cases nationwide but company leaders said during a Jan. 26 earnings call they remain confident that wider vaccine distribution and pent-up vacation demand will greatly help improve business by mid-year.

Alaska Air Group Inc. reported a $430 million net loss in the fourth quarter, which was nearly identical to the company’s third quarter results and pushed its full-year losses to more than $1.3 billion.

For comparison, a year ago the Seattle-based parent company to Alaska Airlines and regional carrier Horizon Air reported a $181 million profit in the fourth quarter of 2019 and annual income of $769 million.

The recent losses translate to $3.47 per diluted share for the quarter and $10.59 per diluted share for the full year. Air Group stock ended Jan. 26 trading at $51.83 per share, down about 2 percent for the day.

Still, Air Group executives stressed their company will be amongst the best positioned in the ravaged industry to capitalize on demand growth whenever the pandemic truly begins to wane.

CEO Brad Tilden noted Air Group’s revenues fell by $5.9 billion, or 59 percent, last year while its net debt remained “essentially unchanged” at $1.7 billion throughout the year.

“I’ve watched the industry and our company my entire (30-year) career and I can’t remember when two numbers stood out in such sharp contrast,” said Tilden, who is retiring.

Current Alaska Airlines President Ben Minicucci is slated to take over for Tilden on April 1.

Tilden attributed the static debt load to management’s ability to aggressively cut spending while also thanking the roughly 10,2000 employees — of 23,000 — that took some form of leave to help mitigate the financial damage to the company and preserve jobs for other employees.

Air Group also received $753 million in federal payroll support grants from the CARES Act early in the year and is scheduled to get another $400 million early this year, according to Tilden.

“Not burdening the company with a massive amount of new debt means that our balance sheet is unimpaired and strong, which means that we can all look forward to using it in the months and years ahead to find new opportunities for all of us,” he said.

According to Chief Financial Officer Shane Tackett, Air Group cut $2.4 billion in expenses over the year, some from its capital program, but largely tried to execute structural savings that could be realized into the future.

The company’s debt-to-capitalization ratio stands at 61 percent, Tackett said, and with a smaller capital investment program in the $150 million to $250 million range this year, Air Group should be able to withstand a lower cash balance and begin repaying its debt to get back to the goal of having a debt-to-cap of less than 50 percent.

The company currently holds more $3.4 billion in cash, according to the fourth quarter report, and $5.2 billion in total liquidity with approved but unused financing options.

Minicucci said bookings and enplanements declined in November as the third wave of the virus spread across the country following several months of demand growth. But bookings have increased about 20 percent in December and January, he added, with travel to warm weather destinations making up the bulk of the sales. Demand has fallen most for Alaska Airlines transcontinental flights

Business travel is at about 15 percent of pre-pandemic levels and is likely to plateau at about 50 percent of historical averages in the long-term, according to Minicucci, who referenced surveys of the Air Group’s corporate customers.

However, the company is planning to bring back its capacity levels to about 80 percent of 2019 levels by mid-summer if current expectations pan out.

“We’ve been treading water recently and believe sustained, progressive improvement will begin when we have a widespread vaccine rollout and states are able to relax their restrictions,” he said. “We are confident leisure travel will lead the recovery and there’s a substantial pent-up demand for leisure travel.”

Air Group expects to operate at about 70 percent of 2019 capacity levels in the first quarter with planes 40 to 45 percent full, according to Minicucci, who said much of the added-back capacity will be out of the company’s strongest Pacific Northwest and Alaska hubs.

On the finance side, Tackett said Air Group leaders expect per-unit costs to be up about 20 percent in the first quarter of this year with cash flow flat or negative by up to $100 million. However, that could improve with quicker vaccine distribution, he added.

In late December Alaska Airlines announced a new agreement with Boeing to take 68 new Boeing 737-900 aircraft through 2024. Alaska executives said the new planes will mostly replace the 51 Airbus A320s Alaska took when it purchased Virgin America in 2016. Prior to that Alaska Airlines for years had flown an exclusively Boeing fleet.

While Boeing has moved its headquarters to Chicago nearly 20 years ago, the aerospace giant has kept its manufacturing facilities in the Seattle area.

“The partnership between Alaska and Boeing is strong as ever,” Tackett said.

“We have employees with spouses, parents, sons and daughters that are Boeing employees. The ties between our to companies are deep and we’re excited about our futures together.”

On a personal level, other Air Group executives praised Tilden’s leadership and desire to build and maintain “a fortress level balance sheet” — a common refrain of his — during what would be his last earnings call with the company.

“(Tilden) has laid the groundwork for the financial discipline we are proud to have today,” Minicucci said. “Brad’s focus was always long-term, sustainable growth and our company is stronger for it.”

For his part, Tilden said Air Group employees have an uncommon loyalty to the company and are the primary reason for its success, particularly in recent years.

Tilden, who has been with Alaska Air Group in various roles over 30 years, took over as CEO and chairman in 2012.

“Serving this great company has been an honor and while I look forward to staying involved my primary job is going to be to step back and support Ben and this great team as they take Alaska to the next level,” Tilden said.

Elwood Brehmer can be reached at [email protected].

01/27/2021 - 9:09am