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Alaska Air (ALK) Q2 Earnings Surpass, Q3 RASM View Upbeat

Zacks Equity Research

Alaska Air Group, Inc. ALK delivered second-quarter 2019 adjusted earnings per share (excluding 6 cents from non-recurring items) of $2.17, beating the Zacks Consensus Estimate of $2.11. Moreover, the bottom line improved substantially year over year on higher revenues.

Revenues came in at $2,288 million, above the Zacks Consensus Estimate of $2,282 million. The top line also rose year over year. Passenger revenues — accounting for a bulk (92.3%) of the top line — were up 6% on a year-over-year basis.

Operating Statistics

Airline traffic, measured in revenue passenger miles, inched up 1.1% year over year in the reported quarter. Capacity or available seat miles expanded 0.9%. Load factor (percentage of seats occupied by passengers) improved 20 basis points to 86.2% as traffic growth outpaced capacity expansion in the quarter under review.

Total revenue per available seat mile (RASM: a key measure of unit revenues) increased 5.2% year over year to 13.48 cents in the quarter under discussion. Meanwhile, yield climbed 4.6% to 14.43 cents.

Alaska Air Group, Inc. Price, Consensus and EPS Surprise

 

Alaska Air Group, Inc. Price, Consensus and EPS Surprise

Alaska Air Group, Inc. price-consensus-eps-surprise-chart | Alaska Air Group, Inc. Quote


Operating Expenses & Income

In the quarter under review, total operating expenses were up 2% year over year to $1,924 million. Operating income jumped 34% from the prior-year quarter to $364 million. Fuel price (economic) was $2.27 per gallon, down 1.3%.

Consolidated cost per available seat mile — excluding fuel and special items — nudged up 2.3% to 8.33 cents.

Liquidity & Buybacks

At the end of the reported quarter, this Zacks Rank #2 (Buy) company had $1,627 million in cash and marketable securities compared with $1,236 million at the end of 2018. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Alaska Air exited the quarter with long-term debt of $1,538 million compared with $1,617 million at the end of 2018. Adjusted debt-to-capitalization ratio was 45% compared with 47% in December 2018. The carrier repurchased 408,665 shares worth approximately $25 million during the first half of the year.

Q3 Outlook

The company envisions capacity to rise approximately 3% year over year in the third quarter. Additionally, RASM is estimated to ascend in the 2-5% range in the period. However, non-fuel unit costs (excluding special items) are projected to increase approximately 5% year over year. This includes a $34-million expected increase in labor-related costs. Meanwhile, economic fuel cost is forecast to decline 5.2% year over year to $2.21 in the current quarter.

2019 Outlook

For the full year, capacity is estimated to expand approximately 2.1% (prior view: increase of 2%) while non-fuel unit costs (excluding special items) are expected to rise nearly 2.2% compared with an increase of 2.1% expected earlier. The view includes costs associated with labor deal ratification and other employee-related costs. Also, capital expenditures are anticipated to be $725 million in the ongoing year, lower than $750 million estimated previously. Meanwhile, effective tax rate is still predicted to be approximately 26% in the year.

Upcoming Releases

Investors interested in the broader Transportation sector are keenly awaiting second-quarter earnings reports from key players, such as Expeditors International of Washington, Inc. EXPD, Air Lease Corporation AL and Hertz Global Holdings, Inc HTZ. While Expeditors and Hertz will report financial numbers on Aug 6, Air Lease will announce the same on Aug 8.

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