Why Is Alaska Air Down 5.2% Since Last Earnings Report?

A month has gone by since the last earnings report for Alaska Air Group ALK. Shares have lost about 5.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Alaska Air due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Earnings Beat at Alaska Air in Q2

Alaska Air reported second-quarter 2024 earnings per share of $2.55, which outpaced the Zacks Consensus Estimate of $2.36. Earnings decreased 15% on a year-over-year basis.

Operating revenues of $2.89 billion missed the Zacks Consensus Estimate of $2.94 billion. The top line jumped 2% year over year, with passenger revenues accounting for 91.5% of the top line and increasing 2% owing to continued recovery in air-travel demand.

Passenger revenues totaled $2.651 billion in the reported quarter. On a year-over-year basis, cargo and other revenues of $72 million grew 3% year over year. Mileage plan other revenues increased 2% to $174 million.

Total revenue per available seat mile (a key measure of unit revenues) grew 4% year over year to 14.51 cents. Yield increased 1% to 16 cents.

Reflecting the uptick in air-travel demand, consolidated traffic (measured in revenue passenger miles) increased 2% to 15.30 billion. To cater to this increased demand, capacity (measured in average seat miles) grew 6% to 18.19 billion. As traffic failed to outpace capacity expansion, the consolidated load factor (percentage of seat occupancy) fell 2.9 percentage points to 84.1%.

In the second quarter, total operating expenses (on a reported basis) increased 3% year over year to $2.575 billion.

Economic fuel price per gallon grew 3% to $2.84.

Consolidated operating costs per available seat mile (excluding fuel and special items) fell 2% year over year to 9.89 cents.

Liquidity

As of Jun 30, 2024, Alaska Air had $1.115 billion of cash and marketable securities compared with $2.278 billion at the prior-quarter end.

ALK exited the second quarter of 2024 with long-term debt (net of current portion) of $2.313 billion compared with $2.264 billion at the first-quarter end. Debt-to-capitalization ratio was 45%.

ALK utilized $580 million of cash in operating activities in the quarter under review. In the second quarter of 2024, ALK repurchased nearly 663,177 shares for $28 million.

Outlook

ALK anticipates third-quarter 2024 EPS between $1.40 and $1.60. In the same quarter, Alaska Air anticipates the economic fuel cost per gallon in the range of $2.85-$2.95. The company expects available seat miles (a measure of capacity) to increase in the range of 2-3% in the third quarter of 2024 from third-quarter 2023 actuals. CASM is expected to increase in high single digits. RASM is expected to remain flat to positive.

ALK now anticipates 2024 EPS between $3.50 and $4.50 (prior view: $3.25 and $5.25). Capacity (measured in available seat miles) for 2024 is now expected to increase less than 2.5% (prior view: less than 3%) from 2023 actuals.

Capital expenditures are expected to be between $1.2 billion and $1.3 billion. Full year tax rate is anticipated to be around 25%.

Alaska Air incurred a loss of 82 cents per share (excluding $1.05 from non-recurring items) in the first quarter of 2020, narrower than the Zacks Consensus Estimate of a loss of $1.27. In the year-ago quarter, the company reported earnings of 17 cents. The downturn is due to unprecedented drop in air travel demand in the wake of the coronavirus outbreak.

Having started in February, the downfall aggravated in March, with cancellations exceeding bookings. Demand is around 90% below the normal level.

Revenues came in at $1,636 million, missing the Zacks Consensus Estimate of $1,691.1 million. The top line also declined approximately 13% year over year. Passenger revenues — contributing 90.5% to the top line — were down 14% on a year-over-year basis.

Operating Statistics

Consolidated traffic, measured in revenue passenger miles, declined 14.4% year over year in the reported quarter. Capacity (measured in available seat miles) dropped 1.3%. Load factor (percentage of seats occupied by passengers) deteriorated 1,070 basis points to 69.6% as traffic declined more than the amount of capacity contraction.

Total revenue per available seat mile (RASM: a key measure of unit revenues) fell 11.7% year over year to 10.69 cents in the quarter under discussion. Meanwhile, yield inched up 0.9% to 13.9 cents.

Operating Expenses & Income

In the first quarter, total operating expenses (on a reported basis) were up 6% year over year to $1,957 million, with expenses on wages and benefits increasing 10%. Fuel price (economic) was $1.93 per gallon, down 9.4% year over year.

The company reported operating loss of $321 million in the first quarter against operating income of $25 million in the year-ago quarter. Consolidated cost per available seat mile — excluding fuel and special items — inched up 1.8% to 9.22 cents.

Liquidity

At the end of the first quarter, this Seattle, WA-based company had $2,125 million in cash and marketable securities compared with $1,521 million at the end of 2019.
The company exited the quarter with long-term debt of $1,203 million compared with $1,264 million at the end of 2019. Adjusted debt-to-capitalization ratio was 48% compared with 41% at the end of December 2019.

Airline traffic, measured in revenue passenger miles, rose 44.2% year over year to 13,554 million in the reported quarter. Capacity or available seat miles increased 41.1% to 15,612 million. Load factor (percentage of seats filled by passengers) increased 190 basis points to 86.8% owing to traffic growth outpacing capacity expansion.

Passenger revenue per available seat mile (PRASM: a key measure of unit revenues) increased 1.3% year over year to 11.57 cents. While total revenue per available seat mile (RASM) declined 0.4% to 13.46 cents in the reported quarter, yield declined 0.8% to 13.33 cents.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

The consensus estimate has shifted -29.51% due to these changes.

VGM Scores

Currently, Alaska Air has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Alaska Air has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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