Alaska Air Group (ALK): A look at the near-term expectations for this airline

Shares of Alaska Air Group Inc. (NYSE: ALK) were down 2% on Monday. The stock has dropped 14% year-to-date and 19% over the past 12 months. Last month, the company delivered encouraging results for the second quarter of 2022 boosting optimism around the stock. Here’s a look at the airline’s near-term expectations:

Revenue and demand trends

Alaska generated revenues of $2.7 billion for the second quarter of 2022, which was up 74% year-over-year and 16% compared to Q2 2019. Revenues were strong across all regions and were driven by robust demand.

Alaska continues to see strong demand trends with leisure demand staying above 2019 levels and a full recovery in business channels revenue-wise. The company expects to see a continued recovery in corporate business travel volumes. However, factors like inflation and high oil prices could negatively impact demand. Total revenue for the third quarter of 2022 is expected to be up 16-19% versus the same period in 2019.

Profitability and margins

Alaska reported adjusted EPS of $2.19 in Q2 2022 compared to a loss of $0.30 per share in Q2 2021. Adjusted pretax margin for the quarter was 14%. For the full year of 2022, adjusted pretax margin is expected to be 6-9%.

Capacity and fleet

Capacity in Q2 was up 16.4% year-over-year while load factor rose to 88.1%. Compared to Q2 2019, capacity was down 8% while load factor was up by nearly 2 points. Alaska expects capacity to be down 5-8% in Q3 2022 compared to Q3 2019 and down 8-9% in FY2022 versus FY2019. Passenger load factor is expected to range between 85-88% in Q3 2022.

Alaska remains on track with its transition towards a single fleet. It continues to expand its Boeing 737-9 MAX fleet and expects to fully retire its A320s and Q400 by early 2023 followed by the A321s by the end of 2023.

Costs

In Q2 2022, cost per ASM excluding fuel and special items (CASMex) was up 7.8% YoY while economic fuel cost per gallon almost doubled to $3.76. CASMex was up 19% compared to Q2 2019. For the third quarter of 2022, CASMex is estimated to be up 16-19% from Q3 2019 while economic fuel cost is expected to range between $3.79-3.89 per gallon. For FY2022, CASMex is expected to be up 15-17% versus FY2019.

Click here to read the full transcript of Alaska Air Group’s Q2 2022 earnings conference call