Alaska Air Group, Inc.
CEO : Mr. Benito Minicucci
Quarterly earnings growth(YoY,%)
| Period | Revenue | Operating Income | EPS | Release Date |
|---|---|---|---|---|
| 2022 Q4 | 30.5% YoY | -41.0% | 21.4% | 2023-01-26 |
Shane Tackett says,
Strong 2022 Results and Financial Goals for 2023
- 7.6% adjusted pretax margin for full year 2022 led the industry
- All employees to receive significant performance-based bonuses in February 2023
- Debt to cap of 49%, within target range of 40% to 50%
- Cash flow from operations totaled $1.4 billion for full year 2022 and total liquidity inclusive of on-hand cash and undrawn lines of credit ended the year at $2.8 billion
- Trailing 12-month return on invested capital reached 9% in 2022, above cost of capital and approaching long-term target range
- Plan to restart share repurchases in Q1 2023
- Secure expanded order book with Boeing through rest of this decade
Costs and Capacity
- CASM ex increased 24% versus 2019, approximately 1 point above guide, driven entirely by lost capacity and incremental costs due to severe winter weather in November and December
- Full year CASM ex in capacity ended within guided ranges at up 20% and down 9%, respectively, versus 2019
- Performance-based bonus and incentive pay programs represented approximately 2 points of unit cost pressure versus 2019
- Return to pre-pandemic levels of capacity during first half of 2023
- Expect capacity to be up 11% to 14% with CASM ex down 0% to 2% year-over-year for Q1 2023
- Expect capacity to be up 8% to 10% with CASM ex down 1% to 3% on a year-over-year basis for full year 2023
Fuel
- Expect fuel price per gallon to be $3.15 to $3.35 for Q1 2023 and $3.10 to $3.30 for full year 2023
- Hedging program uses 20% out of the money call options only with strike prices above anticipated oil prices
- Significant 2022 benefit from hedging, approximately $170 million, will likely turn to a net cost in 2023
Margin Outlook and Adjustments
- Expect margins to improve in 2023 with full year adjusted pretax margin guide of 9% to 12%
- Structural impact of ratified labor contracts to contribute approximately 3 points to full year CASM ex
- Will adjust capacity accordingly in response to uncertain economic backdrop
Benito Minicucci says,
Financial Performance and Guidance
- Air Group generated full year revenue 10% above 2019 levels on 9% less capacity, with a 7.6% full year adjusted pretax margin.
- Employee performance bonus payout was the largest in company’s history, adding 10.5% on top of employee salaries or nearly 6 weeks’ worth of pay.
- For 2023, Air Group expects to achieve adjusted pretax margins of between 9% and 12% and introduced an earnings guide of $5.50 to $7.50 per share, which implies restoration to 2019 EPS levels at the midpoint.
Strategic Priorities and Initiatives
- Air Group identified 3 key priorities to strengthen their competitive advantage and prepare for future growth, including completing labor deals, fortifying operational reliability, and executing single fleet transitions at both Alaska and Horizon.
- Leadership team has a clear set of strategic initiatives that will support growth aspirations, expand margins, and improve operational excellence.
- The revenue roadmap outlined at March Investor Day will provide valuable contributions in 2023 and continue to build to the $400 million target.
Capacity and Fleet Growth
- Air Group plans to grow 8% to 10% versus prior year in 2023, so long as demand and the economic environment continue to support it.
- Hiring plans include 3,500 more employees in 2023 and remain in close communication with Boeing and have a high degree of confidence in their fleet planning assumptions.
Cost Discipline and Productivity
- Air Group believes low cost and high productivity matter and that pursuing both benefits all stakeholders.
- Leadership team is dedicated to driving down unit cost in 2023 as they restore flying and begin to close the productivity gap, enabled by single fleet transition and upgauge benefits that come with the new MAX fleet.
Industry Shifts and Competitive Strengths
- There have been structural shifts within the industry, but history has proven time and again that cost discipline and a strong balance sheet are required to win in the airline business.
- Air Group continues to believe in pursuing both low cost and high productivity to benefit all stakeholders.
Q & A sessions,
Efficiencies of Single Fleet
- Boeing and Embraer 175 fleet drives massive efficiency in terms of crews and swapping airplanes
- Major improvement expected with single fleet
Volatility in Staffing
- Volatility in staffing and training goes away, which leads to stability
- Operational reliability is critical and will be focused on
Returning from Pandemic
- Industry struggled in getting back to a certain level of capacity
- Issues faced by Alaska and the industry as a whole
Changes in Business
- There are things that will never go back to the way they were pre-pandemic
- Many things are in the company’s control and will be addressed
- Savings will be targeted and pursued
No bad stock 