Alaska Air’s 3Q Shaping Up For An Earnings Miss

by Trefis Team
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Alaska Air Group
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Alaska Airlines (NYSE:ALK) is expected to report earnings on the 25th of October. The airlines’ profits fell through the first half as a result of constant pressure from rising crude prices. As a result, the carrier was forced to implement several changes this quarter to offset rising costs. Earnings per share is expected to come in around $1.85, with revenue expected to come in 4% higher at $2.2 billion.

We currently have a price estimate of $70 per share, which is 12% higher than the market price. You can use our interactive dashboard Q3 Outlook For Alaska Airlines to modify key drivers and visualize the impact on ALK’s price estimate.

One of the key changes that Alaska Airlines made this quarter was to increase its baggage fees. The company had been holding off on increasing baggage fees, but with pressure on margins, it had to relent. Among the major carriers, that leaves Southwest as the only carrier without baggage fees.

With RASM (revenue per average seat mile) expected to slip to 2%, Alaska Air is expected to face efficiency issues over the quarter. The non-fuel costs are expected to rise to 5%, while the average fuel cost for the quarter is expected to increase by 28%. All these factors are expected to weigh on the company’s earnings for the quarter. To offset these costs, Alaska Air continued to control costs, lower its incentive pay, and shift time-based expenses for the quarter. In addition, the company managed to improve close-in pricing on its many of the routes that it serves.

In conclusion, expect little upside this quarter from the carrier, as rising crude prices play spoilsport to its earnings. Furthermore, Alaska Air has done little to offset the costs. Increases in baggage fees, and minor adjustments in operating costs, will have minimal affect.

 

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