Alaska Air (NYSE: ALK ) Group, in their recent earnings call, reported a GAAP net income of $139 million and an adjusted net income of $237 million for the third quarter. Despite headwinds from rising crude oil prices and increased fuel costs, the company managed to reduce unit costs by nearly 5% year-over-year and achieved an adjusted pre-tax margin of 11.4%. They also reported a 12% increase in revenues, attributed to a 6% growth in capacity.
Key takeaways from the call include:
- Alaska Air Group retired their last Airbus aircraft, marking their return to a single fleet.
- Demand remains strong in peak periods, but shoulder periods are more susceptible to lower demand without a full return of corporate travel.
- For the fourth quarter, the company expects revenue to be up 1% to 4% on capacity that is up 11% to 14% year-over-year.
- The company has narrowed its full-year revenue guidance to 7-8% growth.
- They are managing capacity prudently and focusing on leisure destinations while constraining total capacity growth.
- The company's balance sheet and liquidity remain stable, with $3 billion in total liquidity.
During the call, the company also discussed their plans for the next year, emphasizing the importance of efficiency and productivity. They aim to protect their market share in key hubs and maintain their position as a premium brand airline while acknowledging fuel costs as a significant headwind. The executives also mentioned a desire to return to 2019 levels of productivity, which could provide a 1-2 point tailwind to unit costs.
The company has seen encouraging signs of improvement in demand, particularly in the corporate travel segment. They expect fourth-quarter revenue per available seat mile (RASM) to accelerate, and while they are slowing capacity growth, they plan to continue growing at a rate of 4-8% in the coming year.
Alaska Airlines executives also discussed their product offerings and growth plans. They emphasized that their product is compelling, with a first-class and premium product available on every airplane in their fleet, including regional aircraft. They also highlighted their oneworld membership, global access, and lounges as additional offerings.
In terms of future growth, there was discussion about the possibility of expanding the cabin, particularly on the MAX 8 aircraft, which currently carry 12 first-class seats but could potentially be increased to 16. The executives mentioned that they are working on reshaping their order book with Boeing (NYSE: BA ) to maximize profitability and manage capacity.
Despite headwinds such as Maui and refining margins, Alaska Airlines maintained a resilient business model, achieving a margin equivalent to Delta and United in Q3. The executives also mentioned that Sabre (NASDAQ: SABR ), a technology company they work with, is performing well. They believe that as they recover from the effects of the pandemic, they will be well-positioned to capture demand across all segments, including premium, and maintain a competitive cost structure.
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