What To Expect From Alaska Air’s Q3 Earnings

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Alaska Air

Alaska Air Group (NYSE:ALK) is all set to report earnings for the third quarter of FY 2017 on October 25, before the market opens. The company has reported impressive numbers in the last few quarters, even as other airlines witnessed a slowdown. In the previous quarter, it managed to beat on both earnings and revenues on improved top line performance across the board. That said, the second half of the year is expected to witness slower growth as market fundamentals and tougher year-over-year comparisons weigh on earnings. Furthermore, recent weather-related disruptions have hurt the company severely in Q3, making an earnings beat quite unlikely this time around.

Points To Note:

  • In May 2017, Alaska approved of an amendment to the existing eight-year pay-related contract with the pilots of Horizon Air, a subsidiary. This amendment is expected to increase labor costs significantly, consequently hurting the bottom line in Q3. Further, the adverse timing of maintenance events and a shift in costs from Q2 are bound to weigh on the bottom line. Despite this, the company’s current guidance pegs non-fuel unit costs to drop year-over-year beginning early next quarter. We could learn more about this on the upcoming call.
  • In terms of fuel costs, rising oil prices are expected to limit the company’s bottom line growth in the third quarter significantly. Currently, fuel costs are projected to be around $1.76 per gallon in Q3, reflecting a jump of close to 12% in comparison to the same period last year. We can expect similar conditions to prevail over the remainder of the year.
  • On the positive side, Alaska’s expansion plans continue to remain encouraging. In August, the airline announced a customer friendly deal with Singapore Airlines. As part of the deal, the two will form a codeshare agreement to allow sharing of flights — meaning a passenger can avail any flight operated by either company covered under the contract, irrespective of the flight number. Additionally, on September 27, the company announced that members of Alaska Mileage Plan and Singapore Airlines KrisFlyer loyalty programs will begin earning miles on the airline.
  • Additionally, the merger with Virgin has enabled Alaska to add close to 37 new markets since the deal closed in mid-December, with growth focused primarily in California. 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 LaGuardia sector to improve profitability.

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