Productivity improves 6% and pilot training throughput doubles over prior year; Anticipate double-digit adjusted pre-tax margin in second quarter; Reiterated full-year adjusted pre-tax margin guidance of 9% to 12%
Alaska Air Group (NYSE: ALK) reported financial results for the first quarter ending March 31, 2023, and provided outlook for the second quarter ending June 30, 2023.
“This quarter we returned to pre-pandemic levels of flying and our roadmap to profitable growth is on track,” said Alaska CEO Ben Minicucci. “As we progress through the year, we have taken deliberate steps to build momentum and we are well prepared for peak summer flying. Thank you to our 23,000 employees who are the backbone of our success – I’m proud of their work to deliver operational excellence and show care for the people who fly with us each day. We are well-positioned to deliver on our full-year financial targets, including a 9% to 12% adjusted pretax margin.”
Financial Highlights:
- Reported net loss for the first quarter of 2023 under Generally Accepted Accounting Principles (GAAP) of $142 million, or $1.11 per share, compared to a net loss of $143 million, or $1.14 per share, for the first quarter of 2022.
- Reported net loss for the first quarter of 2023, excluding special items and mark-to-market fuel hedge accounting adjustments, of $79 million, or $0.62 per share, compared to a net loss, excluding special items and mark-to-market fuel hedge accounting adjustments, of $167 million, or $1.33 per share, for the first quarter of 2022.
- Resumed the share repurchase program, purchasing a total of 413,554 shares of common stock for approximately $18 million in the first quarter. The company continues to expect share repurchases of at least $100 million in 2023.
- Held $2.4 billion in unrestricted cash and marketable securities as of March 31, 2023.
- Ended the quarter with a debt-to-capitalization ratio of 48%, within the target range of 40% to 50%.
Operational Updates:
- Ratified a two-year contract extension with more than 2,300 McGee Air Services employees represented by the IAM.
- Received six 737-9 aircraft during the quarter, bringing the 737-9 fleet count to 43.
- Activated new benefits for Alaska Visa Signature® cardholders, including priority boarding, lounge membership discounts, new ways to earn bonus miles and other perks. New benefits and program changes drove cash remuneration under the co- brand credit card agreement up 17% on a year-over-year basis.
- Announced plans to elevate guests' regional flying experience with streaming-fast satellite Wi-Fi on E175 regional jets.
- Announced three new daily nonstop flights from San Diego to Washington, D.C., Tampa and Eugene, beginning service
later in 2023.
- Doubled pilot training throughput compared to the same period in 2022, aided by a 75% increase in qualified flight
instructors and an investment in two 737 full-flight simulators. Three additional 737 full-flight simulator deliveries are
expected later this year.
- Began lobby transformation projects to provide guests a more seamless travel experience; expect to roll out new bag tag
stations and bag drop technology in key airports throughout 2023 and 2024.
- Created a virtual reality 737 flight deck, in partnership with VRPilot, to better prepare pilots for their training experience.
Environmental, Social and Governance Updates:
- Announced an agreement with Shell Aviation to advance sustainable aviation fuel (SAF) technology and infrastructure throughout the West Coast; Shell Aviation will also supply Alaska with up to 10 million gallons of SAF in Los Angeles.
- Launched a partnership with the Surfrider Foundation, an organization focused on protecting coastal habitats and reducing waste across the West Coast and throughout the Hawaiian Islands.
Awards and Recognition:
- Alaska's Mileage Plan named Best Airline Rewards Program by NerdWallet for its customer-friendly policies, rewards and fee structures.
- Alaska and Horizon earned the Diamond Award of Excellence from the Federal Aviation Administration, recognizing the airlines' aircraft technicians for their dedication to training.
The following table reconciles the company's reported GAAP net loss per share (EPS) for the three months ended March 31, 2023 and 2022 to adjusted amounts.
| Three Months Ended March 31, | |||
| 2023 | 2022 | ||
| (in millions, except per-share amounts) Dollars | Diluted EPS | Dollars | Diluted EPS |
| GAAP net loss per share $ (142) | $ (1.11) | $ (143) | $ (1.14) |
| Mark-to-market fuel hedge adjustments 20 | 0.16 | (107) | (0.85) |
| Special items – fleet transition and other(a) 13 | 0.10 | 75 | 0.60 |
| Special items – labor and related(b) 51 | 0.40 | — | — |
| Income tax effect of reconciling items above (21) | (0.17) | 8 | 0.06 |
| Non-GAAP adjusted net loss per share $ (79) | $ (0.62) | $ (167) | $ (1.33) |
- (a) Special items – fleet transition and other in the three months ended March 31, 2023 and 2022 is primarily for impairment charges and accelerated costs associated with the retirement of Airbus and Q400 aircraft.
- (b) Special items – labor and related in the three months ended March 31, 2023 is primarily for changes to Alaska pilots' sick leave benefits resulting from an agreement signed in the first quarter of 2023.
Statistical data, as well as a reconciliation of the reported non-GAAP financial measures, can be found in the accompanying tables. A glossary of financial terms can be found on the last page of this release.
Alaska will hold its quarterly conference call to discuss first quarter results at 8:30 a.m. PDT on April 20, 2023. A webcast of the call is available to the public at www.alaskaair.com/investors. For those unable to listen to the live broadcast, a replay will be available after the call.
Second Quarter and Full Year 2023 Forecast Information
| Q2 Expectation | |
| Capacity (ASMs) % change versus 2022 | Up 6% to 9% |
| Total revenue % change versus 2022 | Up 2.5% to 5.5% |
| Cost per ASM excluding fuel and special items (CASMex) % change versus 2022 | Up 1% to 3% |
| Economic fuel cost per gallon | $2.95 to $3.15 |
| Adjusted pre-tax margin % | 14% to 17% |
Our second quarter guidance reflects the continuation of improving operational and financial performance trends that we experienced in March. For the full year, we continue to expect achievement of our previous guidance, including adjusted pre-tax margins of 9% to 12%, and earnings per share of $5.50 to $7.50. This guidance assumes a full year tax rate of approximately 25%.
References in this update to “Air Group,” “Company,” “we,” “us,” and “our” refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise specified.
This news release may contain forward-looking statements subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995. These statements relate to future events and involve known and unknown risks and uncertainties that may cause actual outcomes to be materially different from those indicated by our forward- looking statements, assumptions or beliefs. For a comprehensive discussion of potential risk factors, see Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2022. Some of these risks include competition, labor costs, relations and availability, general economic conditions including those associated with pandemic recovery, increases in operating costs including fuel, inability to meet cost reduction, ESG and other strategic goals, seasonal fluctuations in demand and financial results, supply chain risks, events that negatively impact aviation safety and security, and changes in laws and regulations that impact our business. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed in our most recent Form 10-K and in our subsequent SEC filings. We operate in a continually changing business environment, and new risk factors emerge from time to time. Management cannot predict such new risk factors, nor can it assess the impact, if any, of such new risk factors on our business or events described in any forward-looking statements. We expressly disclaim any obligation to publicly update or revise any forward-looking statements made today to conform them to actual results. Over time, our actual results, performance or achievements may differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, assumptions or beliefs and such differences might be significant and materially adverse.
