Alaska Airlines Q3 Earnings: Shares Plummet As Problems Mount

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Alaska Air

Alaska Air Group (NYSE:ALK) witnessed its stock price drop by a significant 13% after the earnings call on Wednesday. While there could be many reasons for this, objectively, the airline posted a pretty decent earnings. Despite falling short of the estimates, the company managed to post an earnings per share of $2.14, up by about 3% from last year, while revenues came in a mammoth 35% higher in comparison to the same period last year. It must be noted, however, that the jumps in both EPS and revenue were a product of Virgin’s inclusion in the books. That said, a lot of things went wrong for the airline over the quarter, which spooked investors into a selling frenzy post the earnings call.

Probably the most worrying news for the airline this quarter was the situation it faced at its subsidiary, Horizon Air. In a recent trend, it was observed that many pilots have been quitting Horizon for mainline opportunities. Over the past quarter, it appears as though this rate has increased. Unfortunately, this also comes at a time when the company introduced the new E175 aircraft to its fleet – increasing training needs significantly.

Due to the lack of pilots, the airline was forced to cancel and/or reschedule a number of flights to match availability. This led to a massive dip in revenues at the subsidiary. That said, the company has made major changes in Horizon’s leadership, while consolidating the operations center in Seattle. The airline is confident that these adjustments will help smooth operations as early as Q1 2018.

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Additionally, the company has faced several issues in its integration with Virgin. To put this into perspective, one need only look at the RASM figures in the quarter. While RASM at Alaska came in relatively flat, RASM at Virgin posted a major 8% drop. CEO Brad Tilden has admitted that integrating Virgin with Alaska has been quite sloppy. Even after all these months, Alaska is yet to rebrand all of the Virgin America planes, change the interiors, and bring the two airlines’ loyalty programs together, all the while making sure costs are under control. That said, Tilden is confident that his team will wrap up the integration process in the next six to eight months, and get back to “running an airline.”

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