Alaska Airlines Q4 Earnings: Bottom Line Benefits From Tax Cut; Growth To Slow Going Forward

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Alaska Air Group
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Alaska Air Group (NYSE:ALK) posted a rather decent earnings this time around. The company managed to beat the consensus revenue estimates in the quarter. Sales in Q4 benefited from the inclusion of Virgin in its books, while earnings came in higher on a $274 million tax benefit. That said, barring the one time benefit, earnings in the quarter came in about 46% lower than in the same period last year on increased wages, continuing inclusion costs, and rising fuel prices. For the same reasons, the company has decided to lower its growth projections going ahead.

  • One good news coming out of the quarter is the fact that one of the largest expense items in the books – the cost of merging with Virgin – has finally come under control. According to CEO Brad Tilden, both Alaska and Virgin, should have a single reservation and check-in system by late April, which would enable the company to realize about $65 million in additional revenue by 2018, and around $200 in 2019.
  • As mentioned previously, the company is expecting growth to slow down in the coming year and beyond. This is primarily because there is substantial competitive capacity in the market, which is expected to hurt unit revenues in the coming quarters. That said, the company has a plan to try to offset that headwind. For starters, the airline hopes to introduce a cheaper fare section, much like a “basic economy” seating in an attempt to increase revenue.
  • The company has focused heavily on expanding its network over the past few years. It expects this growth to stabilize in 2018, while it slows by about 4% in 2019 and 2020. This is primarily because the company hopes to optimize and refine its network in the coming quarters, to best capitalize on all the gains thus far.
  • For Q1 2018, the company expects CASM ex-fuel to rise by about 6%, while fuel per gallon rises by about 21%. Capacity is expected to jump by about 8% in the first quarter, while climbing by about 7.5% in the whole year. Additionally, the tax rate in 2018 is expected to roughly be around 24.5%.

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