Alaska Air Q3’16 Earnings Preview: Continued Capacity Growth, Higher Unit Costs To Weigh On Earnings
Key Trends:
- In line with the industry-wide decline in PRASM, we expect Alaska Air’s passenger unit revenue to fall in the range of 7%-8%, compared to last year same quarter. Although, some of this can be attributed to the general weakness in the industry, most of this is due to the airline’s inefficient capacity management. This will adversely impact the airline’s top line.
- Although the airline cut back its capacity growth in September, it has still been on the higher end of the spectrum as compared to the other players in the market. This continued capacity growth, as a result, will keep pressuring unit revenue, despite helping traffic.
- We have recently seen some recovery in oil prices, owing to the OPEC countries’ decision to restrict their combined oil output between 32.5 and 33 million barrels per day, a potential reduction of 200 to 700 MBPD (thousand barrels per day) compared to the output in August. However, the increase is unlikely to have any material impact on the fuel expenditure of the airline in the quarter, as the prices continue to be much lower than the historical $100 per barrel.
- After falling for the first two quarters, Alaska’s unit cost is expected to grow at 3% y-o-y in the third quarter. Consequently, we can expect the operating margins to decline in the quarter.
- After numerous obstacles in the way of the Alaska Air-Virgin America deal, the acquisition is expected to finally close in the last quarter of the year. The acquisition will make the carrier a premier airline for travelers on the West Coast, giving it the biggest chunk of California’s air market.
See Our Complete Analysis For Alaska Air Here
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Have more questions about Alaska Air (NYSE:ALK)? See the following links:
- Why Have We Revised Alaska Air’s Price Estimate To $69 Per Share?
- Alaska Air Reports Another Strong Quarter Backed By Rapid Capacity Growth And Lower Fuel Costs
- Alaska Air Q2’16 Earnings Preview: Capacity Growth, Fiscal Discipline To Support Earnings
- How Will The Virgin America Deal Impact Alaska Air’s Share Repurchase Program?
- Will Alaska Air-Virgin America Face Antitrust Issues?
- How Will The Virgin America Merger Impact Alaska Air’s Cost Of Capital?
- How Will Alaska Air’s Market Share Change Post The Virgin America Deal?
- Why Is Alaska Air Acquiring Virgin America?
- How Will Alaska Air Benefit From The Virgin America Deal Operationally?
- How Will The Expected Return On The Alaska Air-Virgin America Merger Compare With The Previous Deals In The Sector?
- How Will The Virgin America Deal Alter Alaska Air’s Capital Structure?
- Has Alaska Air Paid A Fair Price For Acquiring Virgin America?
- Alaska Air’s Earnings Rise On The Back Of Rapid Capacity Growth And Lower Fuel Costs
Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Alaska Air Group
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