Alaska Air Q2 Earnings: Stock Remains Relatively Flat As Earnings And Revenues Beat

by Trefis Team
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Alaska Air Group
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As expected, Alaska Air Group (NYSE:ALK) reported an overall positive quarter this time around. The company managed to beat on both earnings and revenues on improved top line performance across the board. The market didn’t react all that well to the finances in the quarter, with the stock price remaining relatively flat post the earnings call. The second half of the year is expected to witness a slower growth as market fundamentals and tougher year-over-year comparisons weigh on earnings.

Key Takeaways:

  • The company acquired Virgin America late last year, and so far, the company has benefited greatly in terms of financial integration. The acquisition has enabled the necessary platform upon which to continue the company’s profitable growth. Over the next six months, the company is expecting to launch over 30 new markets, which in time should add notable benefits to its revenue base and profits. To put this into perspective, of the 20 new markets that were launched over the last 9 months, close to 75% of them are already profitable, with roughly 60% of them earning well above the company’s cost of capital.
  • Further, network growth synergies have helped revive growth at Dallas Love Field. The company plans on adding five new routes from the airport to the West Coast, while down-gauging the planes used on the La Guardia sector to improve profitability.
  • Ex-fuel costs have witnessed heavy increases in the last couple of quarters on the back of the recently ratified labor wages contract. In the quarter, the metric came up higher by 3.3% than in the same period last year. Additionally, the company is due to put forth an arbitration proposal in the coming months that is expected to further increase wage costs by about $140 million annually. This represents an increase of about 3% to consolidated ex-fuel CASM, and will reduce pre-tax margins by more than 1.5 points.

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