Alaska Air's Revenue Trends Improve, Q4 Capacity to Fall 40%
Alaska Air Group Inc ALK provided an update on its recent operational trends and expectations as the company deals with coronavirus-induced weakness in air-travel demand.
In an investor update, the company revealed that revenue passengers declined 74%, 71% and 68% year over year in July, August and September, respectively. Capacity, measured in available seat miles (ASMs), was down 63%, 51% and 50% in July, August and September respectively, while load factor (percentage of seats filled by passengers) was down 54%, 46% and 47% in the respective months. Additionally, total revenues dropped 73%, 72% and 66% in July, August and September respectively. This improving trend can be attributed to the gradual increase in passenger demand, especially leisure-travel demand.
For October, the airline anticipates revenue passengers to plunge 60-65% year over year. Meanwhile, capacity is estimated to fall approximately 45% year over year in the same month. While passenger load factor is expected to be down nearly 45-50% in the ongoing month, total revenues are estimated to fall around 65%. For the fourth quarter, the airline predicts capacity to drop approximately 40% year over year.
Alaska Air Group, Inc. Price
The airline expects capacity reductions to continue into 2021. To avoid furloughs amid shrinkage in airline operations, more than 4,000 employees have accepted early-out programs as well as extended leaves. Despite this, approximately 400 employees, primarily flight attendants, were furloughed involuntarily on Oct 1 as the federal aid covering airline payroll expenses expired. However, Alaska Air expects to recall many of these employees based on capacity and network expectations.
With regard to the early-out option, extended leaves and non-union management reductions, the carrier is expected to have recorded a one-time cost of approximately $320 million in the third quarter (results will be available on Oct 22). The airline will also make one-time cash payment of approximately $30 million in October for these programs. The remaining cash payments will continue for up to two years.
Alaska Air’s September cash burn was approximately $117 million. The airline stated that the September cash burn was higher than August due to increased spending on additional flying and higher debt-service payments. October cash burn is expected to be approximately $125 million. To bolster liquidity, the company closed an agreement with the U.S. Department of the Treasury to borrow up to $1.9 billion under the Coronavirus Aid, Relief, and Economic Security (CARES) Act loan program. To date, the airline drew $135 million. The remaining amount can be drawn through March 31, 2021.
Zacks Rank & Key Picks
Alaska Air carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the broader Transportation sector are Expeditors International of Washington Inc EXPD, Old Dominion Freight Line Inc ODFL and Knight-Swift Transportation Holdings Inc KNX . While Expeditors carries a Zacks Rank #2 (Buy), Old Dominion and Knight-Swift sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares of Expeditors, Old Dominion and Knight-Swift have rallied more than 19%, 58% and 15% respectively so far this year.
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