Alaska Air Gets $162M In Initial Compensation From Boeing For January Incident, Issues Robust Q2 Outlook

Alaska Air Group, Inc ALK reported first-quarter 2024 total operating revenue growth of 2% year-over-year to $2.232 billion, beating the consensus of $2.19 billion.

Adjusted EPS stood at $(0.92), down from $(0.62) a year ago, beating the consensus of $(1.05).

The airline stated that its first quarter operation and results were significantly impacted by Flight 1282 in January and the Boeing 737-9 MAX grounding, which extended into February.

Alaska Air received $162 million in initial cash compensation from Boeing to address the financial damages incurred.

Revenue passengers declined 1% Y/Y, traffic was flat, capacity fell 2% Y/Y, and load factor expanded from 79.9% to 81.1%.

Economic fuel cost per gallon for the quarter declined by 10% Y/Y to $3.08.

During the quarter, ALK inked an agreement to purchase Hawaiian Airlines for $18 per share and ratified a five-year collective bargaining agreement with ~1,000 Alaska Airlines employees represented by AMFA.

Alaska Air repurchased 561,086 shares for ~$21 million in the quarter.

The airline generated $292 million in operating cash flow for the quarter. The company held $2.3 billion in unrestricted cash and marketable securities as of March 31, 2024.

ALK ended the quarter with a debt-to-capitalization ratio of 47%, within the target range of 40% to 50%.

Alaska Airline Received two E175 aircraft during the quarter, bringing the total in the Horizon fleet to 43.

Q2 Guidance: Alaska Air expects Q2 EPS of $2.20-$2.40 versus $2.12 consensus; ASMs expected to be Up 5%-7% compared to 2023 And sees economic fuel cost per gallon between $3.00-$3.20.

2024 Guidance: ALK expects EPS Of $3.25-$5.25 versus $6.07 Consensus; ASMs expected to be < 3% compared to 2023 and sees Capex Of $1.2 billion – $1.3 billion.

In an interview with Reuters, Chief Financial Officer Shane Tackett stated, “Alaska has deployed more of its inspectors at Boeing’s factories since the incident to ensure the jetmaker produces the highest quality aircraft that it can confidently fly safely.”

Alaska Air Group, facing the grounding of its MAX 9 fleet after a cabin panel incident in January, prioritizes the quality and safety of Boeing’s 737 MAX planes over their production rate.

The incident and subsequent fleet grounding have prompted Alaska Air to revise its growth expectations. This adjustment comes amidst a backdrop of reduced aircraft deliveries from Boeing, with the airline expecting around 10 planes this year, down from the planned 23.

The certification delay of Boeing’s MAX 10 variant, expected by Alaska in late 2025, adds uncertainty. Despite Boeing’s compensation for the Q1 grounding offsetting potential profits, Alaska seeks more, likely as credits for future purchases, reflecting a strategy focused on long-term fleet quality and safety.

Price Action: ALK shares are trading higher by 1.08% at $43.18 premarket on Thursday.

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