Alaska Air’s Revenue Trends Improve, Q4 Capacity to Fall 40%

Ella Castle

Alaska Air Group Inc ALK provided an update on its recent operational trends and expectations as the company deals with coronavirus-induced weakness in air-travel demand. In an investor update, the company revealed that revenue passengers declined 74%, 71% and 68% year over year in July, August and September, respectively. Capacity, […]

Alaska Air Group Inc ALK provided an update on its recent operational trends and expectations as the company deals with coronavirus-induced weakness in air-travel demand.

In an investor update, the company revealed that revenue passengers declined 74%, 71% and 68% year over year in July, August and September, respectively. Capacity, measured in available seat miles (ASMs), was down 63%, 51% and 50% in July, August and September respectively, while load factor (percentage of seats filled by passengers) was down 54%, 46% and 47% in the respective months. Additionally, total revenues dropped 73%, 72% and 66% in July, August and September respectively. This improving trend can be attributed to the gradual increase in passenger demand, especially leisure-travel demand.

For October, the airline anticipates revenue passengers to plunge 60-65% year over year. Meanwhile, capacity is estimated to fall approximately 45% year over year in the same month. While passenger load factor is expected to be down nearly 45-50% in the ongoing month, total revenues are estimated to fall around 65%. For the fourth quarter, the airline predicts capacity to drop approximately 40% year over year.

Alaska Air Group, Inc. Price

Alaska Air Group, Inc. Price

Alaska Air Group, Inc. price | Alaska Air Group, Inc. Quote

The airline expects capacity reductions to continue into 2021. To avoid furloughs amid shrinkage in airline operations, more than 4,000 employees have accepted early-out programs as well as extended leaves. Despite this, approximately 400 employees, primarily flight attendants, were furloughed involuntarily on Oct 1 as the federal aid covering airline payroll expenses expired. However, Alaska Air expects to recall many of these employees based on capacity and network expectations.

With regard to the early-out option, extended leaves and non-union management reductions, the carrier is expected to have recorded a one-time cost of approximately $320 million in the third quarter (results will be available on Oct 22). The airline will also make one-time cash payment of approximately $30 million in October for these programs. The remaining cash payments will continue for up to two years.

Liquidity

Alaska Air’s September cash burn was approximately $117 million. The airline stated that the September cash burn was higher than August due to increased spending on additional flying and higher debt-service payments. October cash burn is expected to be approximately $125 million. To bolster liquidity, the company closed an agreement with the U.S. Department of the Treasury to borrow up to $1.9 billion under the Coronavirus Aid, Relief, and Economic Security (CARES) Act loan program. To date, the airline drew $135 million. The remaining amount can be drawn through March 31, 2021.

Zacks Rank & Key Picks

Alaska Air carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader Transportation sector are Expeditors International of Washington Inc EXPD, Old Dominion Freight Line Inc ODFL and Knight-Swift Transportation Holdings Inc KNX . While Expeditors carries a Zacks Rank #2 (Buy), Old Dominion and Knight-Swift sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Expeditors, Old Dominion and Knight-Swift have rallied more than 19%, 58% and 15% respectively so far this year.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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