You won't findAlaska Air Group stuck in a holding pattern.
The parent of Alaska Airlines and Horizon Air has been gaining
altitude on the profit front amid efforts to reduce costs,
improve service and expand its routes.
Alaska Air Group (
) has seen profits climb by at least 17% the past four quarters.
In the most recent first quarter, earnings rose 59% to 62 cents a
share, ahead of forecasts by Thomson Reuters for 56 cents a
share. It was Alaska's fastest profit gain in two years. Revenue
rose 9% to $1.13 billion on 8.7% capacity growth.
Why the big climb in profits?
"This quarter's record profit resulted from steady demand that
kept pace with our 9% capacity growth as well as from the many
changes we've made to improve our business over the last several
years to lower our costs, better match capacity with demand,
expand our network, while at the same time continuing to deliver
award-winning service to our customers," said Chief Financial
Officer Brandon Pedersen in an email.
The company has done a good job managing capacity as it
relates to passenger traffic, says McAdams Wright Ragen analyst
Mike Roarke. As a result, he says, it's been able to maintain a
pretty good load factor, which is the amount of seats occupied on
In addition, he adds, the company has been very focused on
"Those two pieces have continued to add up to pretty good
results for the company," he said.
The Seattle-based company has taken a number of steps over the
past few years to reduce costs and operate more efficiently.
Alaska Airlines was one of the first airlines to put kiosks at
airports to more efficiently check in passengers, says CRT
Capital Group analyst Michael Derchin. It also went to one fleet
type, the Boeing 737, he adds, to reduce pilot training costs,
reduce inventory of spare parts and other efficiencies related to
a common aircraft type.
Bringing in newer, more efficient planes also has helped the
company lower its unit cost annually in recent years, Derchin
Alaska and Horizon Air with partner regional airlines serve 95
cities through an expansive network in Alaska, the lower 48,
Hawaii, Canada and Mexico.
The first quarter is its seasonally weakest period. In many
years, it's posted sizable losses during the quarter, said CEO
Brad Tilden on the April 25 first-quarter conference call.
This year, it earned a profit in each month during the
quarter, and for the first time in Tilden's 22 years at the
company, it saw a profit in the month of January.
The company is hitting its "aggressive cost management
objectives," and the decline in oil prices will help
significantly, Tilden said on the call.
"So overall, these excellent first-quarter results put us in a
good position for the rest of the year," he said.
For the quarter, pretax margin was 6.3%, a 1.9 percentage
point improvement from a year earlier.
The company's unit cost, excluding fuel, was down 2.3% vs. a
year earlier, a bit lower than its initial guidance at the start
of the quarter, Pedersen said on the call.
The company's average load factor in the first quarter was
85.1%, which was an all-time high for the first quarter, Derchin
says. He expects the load factor to be even higher in the second
and third quarters.
Over the past few years, Alaska has expanded to more cities to
create a more balanced network in terms of geography, says
Derchin. Most recently, in the first quarter, it began new
service between San Diego and Boston and between Seattle and Salt
Lake City. It will begin new service between San Diego and Lihue,
Hawaii, and seasonal service between Portland and Fairbanks in
Capacity growth during the first quarter was driven by new
midcontinental routes, transcontinental routes out of the Pacific
Northwest and by California to Hawaii routes added last year.
Among the company's strengths, says Roarke, is its ability to
Because it's smaller, it's able to deploy more capacity into
markets when it sees an opportunity, he says. It's much tougher,
he adds, for its larger competitors to do that.
Analysts polled by Thomson Reuters expect the company to
continue operating at a higher altitude. They see full-year
earnings rising 19% to $5.65 a share. They expect a 15% gain in
On the cost side, Derchin estimates the company's average cost
of jet fuel will fall to $3.27 per gallon in the second quarter
from $3.48 in the first quarter. That should be a "nice tail
wind," he said.
In terms of the outlook for travel, leisure travel has held up
pretty well and looks good, he says.
But business travel is tied to the economy, which is growing
slowly. There are some negative factors coming out of
sequestration. People traveling for government are cutting back,
he says, and consultants who work for the government are also
"All in all, demand is OK, but not robust," he said.
The company faces some competitive head winds.
"We're seeing more competitive capacity in certain markets and
some pricing actions by competitors that are negatively affecting
fares," Tilden said on the conference call. He sees advanced book
load factors flat in both May and June.
On a combined basis, Alaska Air Group saw an 8.5% increase in
traffic on an 8.9% increase in capacity for April vs. a year ago,
it reported May 3.
This resulted in a 0.3% decrease in load factor to 86.1%.
Tilden says the company is taking steps to improve yields,
which represent the average revenue for flying one passenger one
mile. And it's evaluating whether more changes to fall capacity
"We have a history of reacting appropriately to changes in
demand and adjusting capacity," he adds. "Our size allows us to
be flexible and adapt quickly."
Roarke questions if the company can keep growing at the pace
it has been: "They have had such a phenomenal recent history, I
wonder how do they continue to keep that intact. How do they
continue to raise prices and continue to expand profitably
without attracting competitors to their route? They're making so
much money, why aren't other airlines jumping in and trying to
replicate the results they're achieving in some of their key