Payroll aid pushes Alaska Air to first profit since pandemic
Alaska Airlines is back in the black, but not without significant help.
The airline’s Seattle-based parent company, Alaska Air Group Inc., officially posted a $397 million profit in the second quarter that compares extremely favorably against the $214 million loss in the pandemic-restricted second quarter of 2020.
The profit came after five consecutive quarters of losses that totaled nearly $1.5 billion.
“The results we published this quarter show we are successfully rebuilding our company and returning to profitability,” CEO Ben Minicucci said in a July 22 earnings call.
However, Air Group’s second quarter profit was also the direct result of the $664 million in CARES Act Payroll Support Program grants and loans the company received during the period. Congress appropriated a second, $16 billion round of PSP aid for airlines as part of the second round of broader pandemic aid spending late last year.
Without the federal aid, special items and fuel hedging adjustments, Alaska Air Group reported a net loss of $38 million in the second quarter; that is still a vast improvement over where the airline company, which owns Alaska and regional Horizon Air, has been.
The reported $397 million profit translates to earnings of $3.15 per share; the $38 million loss equates to 30 cents per share, according to the quarterly earnings report. Air Group stock closed July 26 trading at $60.65 per share, up 7 percent from a pre-report price of $56.33 per share.
Company executives repeatedly emphasized how both operational and financial metrics improved month-to-month during the quarter when compared to 2019.
Chief Commercial Officer Andrew Harrison called June “a turning point” for Alaska.
“Margins improved significantly during the quarter,” Minicucci said. “We exited March with a 41 percent loss and ended June with a pretax income of 14 percent.”
The turnaround is mostly due to a surge in summer leisure travel, according to Minicucci, who added that Air Group leaders expect their business to return to 2019 levels next summer, though activity at Alaska’s SeaTac hub is pretty much there already.
They also expect to produce “double-digit margins” in the third quarter and “high-single digit margins” to end the year, he said, crediting the company’s disciplined approach to deploying capacity has helped control costs as revenue returns.
To that end, Alaska is likely to temporarily put back into service 10 Airbus aircraft acquired in the Virgin America purchase, a move that could also insulate the airline from scheduling disruptions if delivery of the new Boeing 737s Alaska has traditionally flown is delayed.
“Our measured deployment of capital allows us to maximize financial results while allowing our operations to scale up successfully,” said Minicucci, who took over the lead role April 1 following the retirement of former CEO Brad Tilden.
Total flight capacity for the quarter was 21 percent less than spring 2019 levels but load factors, or how full a flight is, increased from 70 percent in April to 86 percent in June and are expected to stay in that range for the rest of the summer, according to Harrison. The company’s overall revenue per available seat miles offered was off just 5 percent from 2019 by June because of the larger passenger volumes after starting the quarter down 25 percent, Harrison said.
Air Group averaged 19,001 employees during the quarter, up 20 percent from a year ago but still well off the company’s pre-pandemic workforce of more than 22,000. The rebound in travel demand has pushed Alaska leaders to ask some employees to fill other short-staffed roles in the operation, notably ground activities such as baggage handling.
Minicucci commended the airline’s employees for supporting each other and striving to “take care of our guests no matter what it takes.”
Alaska spokesman Tim Thompson wrote via email that in Alaska, most of the airline’s employees that were on leave during the pandemic have been called back and a small number will return to work before the end of the year. Alaska currently has 1,825 employees across the state and is hiring in some workgroups, according to Thompson.
Flying more with fewer empty seats allowed Air Group to nearly double its revenue from the first quarter — when it lost $131 million — to more than $1.5 billion while nonfuel expenses increased just 9 percent from the first quarter.
Chief Financial Officer Shane Tackett noted that while much of the $840 million in cash flow generated during the quarter was the direct result of federal aid, $351 million of it was from company operations.
“Our results are solidly among the best in the industry,” Tackett said, adding that Air Group has accelerated its debt payoff plan and paid off $570 million in the second quarter. The company’s debt-to-capitalization ratio stood at 56 percent on June 30, down five points from the start of the year.
Travel credits have accounted for an outsized portion of the recent bookings, according to Tackett. Customers used approximately $185 million worth of ticket credits in the second quarter, while the pre-pandemic average was about $40 million per quarter, he said.
Elwood Brehmer can be reached at [email protected].