Severe winter weather costs Alaska Airlines in first quarter financial reports

Alaska Airlines muddled its way through unusually bad winter weather on its home turf to lead its parent company to a $4 million profit to start 2019.

Seattle-based Alaska Air Group Inc. operates Alaska Airlines and regional carrier Horizon Air.

Company leaders said during an April 25 first quarter earnings call with investors that February storms made for the most significant winter weather the Pacific Northwest has seen in almost 50 years and led to roughly $15 million in forgone revenue.

“Our teams went above and beyond to keep our guests and each other safe and to minimize the number of flights we had to cancel,” CEO Brad Tilden said while noting Alaska and Horizon canceled approximately 1,100 flights as a result of the winter storms.

Tilden also said lower than expected market rates for last-minute tickets on transcontinental flights challenged revenue generation as well.

The $4 million net income in the first quarter — easily the slowest period in the airline business — matches Alaska Air Group’s results to start 2018 when the company was focusing on integrating Virgin America employees and aircraft into its network.

The profit equates to 3 cents per diluted share of Alaska Air Group stock, which has rebounded from a 2.9 percent post-earnings call dip since April 25 and opened trading May 1 at $62 per share.

Alaska Air Group paid a dividend of 35 cents per share and repurchased approximately $13 million worth of shares during the quarter.

Tilden said the work to blend Virgin America into Alaska Airlines that has been ongoing since late 2016 is pretty much complete and the company is “on track to realize $330 million in revenue synergies this year.”

Virgin and Alaska flight attendant crews were fully integrated as of Jan. 31 and the last of Virgin’s fleet of 71 Airbus aircraft will be repainted in Alaska livery by June, according to Air Group leaders.

Alaska Airlines also added four new Boeing 737-900ER aircraft to its fleet in the first quarter. The airline, which for years before buying Virgin solely flew the popular 737 series, does not have any of the 737 MAX aircraft that have been grounded worldwide.

The $4 million profit stemmed from nearly $1.9 billion in quarterly operating revenue, a 2 percent year-over-year increase on 0.2 percent capacity growth. While Alaska Air Group saw small growth in its passenger and smaller ancillary revenue segments, the company enjoyed 22 percent growth in its cargo business, which generated $50 million during the quarter.

Alaska Airlines has used the formerly Virgin America Airbus fleet in part to expand its Lower 48 cargo offerings. Last summer it also began flying three cargo-dedicated Boeing 737-700s across Alaska. The new cargo jets are more fuel efficient than the much older Boeing 737-400 “combi” aircraft that were well known to in-state Alaska travelers for years and collectively offer 20 percent more cargo capacity, according to the airline.

Alaska Air Group’s two largest expenses, wages and fuel, increased by 4 percent and 3 percent respectively, compared to 2018.

The company generated $470 million in operating cash flow and held roughly $1.4 billion in cash at the end of the quarter, according to the earnings report. Its debt-to-capitalization ratio held steady at 47 percent.

Looking ahead, company executives said near-term growth will be slower and more work needs to be done to control costs but they are generally positive about the future.

Tilden said the previously stated goal of consistently hitting profit margins in the 13 percent to 15 percent range is achievable and “viewed through that lens our first quarter results were solid.”

“On factors we can control that drive long-term value we’re headed in the right direction,” he added.

Chief Financial Officer Brandon Pedersen said the company continues to renegotiate agreements with vendors for greater cost containment and thanked the companies Air Group works with that have been willing to make those adjustments.

For the second quarter Air Group expects costs per seat mile to increase about 5 percent on a 1 percent increase in capacity because of capacity growth weighted to regional flights and aircraft maintenance that is often frontloaded to the first half of the year.

Full-year consolidated capacity growth is forecasted at about 2 percent with per-unit costs expected to increase 2.1 percent.

“We’ve slowed our growth to let recent investments mature and to focus our energies on making better use of what we have,” Tilden said. “We’re investing in our people, our product and we’re coming together as one team to realize the great potential of our platform.”

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Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.