What’s In The Cards For Alaska Air’s Q2?

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Alaska Air (NYSE: ALK) will report its Q2 2023 results on Tuesday, July 25. We expect the company’s revenues to come in at $2.7 billion, slightly below the consensus estimate of $2.8 billion. This would mark year-over-year growth of about 2%. Earnings will likely come in at about $2.60 on a per-share and adjusted basis, slightly below the $2.68 consensus estimate. See our interactive dashboard analysis on Alaska Air Earnings Preview for more details on how the company’s revenues and earnings will likely trend for the quarter. So, what are some of the trends that are likely to drive Alaska Air’s results?

The company will likely continue to benefit from the robust travel demand. It should see a continued rise in total available seat miles (ASM), and the passenger load factor will likely remain strong. However, it will be a tough comparison with the prior-year quarter, which saw a record travel demand. The average ticket price has also cooled this year while overall capacity has expanded. Looking at Q1 2023, Alaska Air’s revenues were up 31%, led by a 14% rise in capacity and a 15% rise in average revenue per available seat mile to 13.98 cents.

Looking at the bottom line, Alaska Air reported a $0.62 loss per share on an adjusted basis in Q1, compared to a $1.33 loss per share in the prior-year quarter. The company’s average fuel price per gallon stood at $3.41 in Q1, and it should be lower in Q2 vs. its prior-year figure of $3.76. The average U.S. Gulf Coast Kerosene Jet fuel price per gallon fell from $3.90 (end of June last year) to $2.40 now. Now that fuel prices have cooled compared to last year, the company will likely see its operating margin expand. After seeing a sharp decline from 12% in 2019 to -50% in 2020 due to the impact of the pandemic, Alaska Air’s operating margin has recovered to 1% in 2022. Our Alaska Air’s Operating Income Comparison dashboard has more details.

Looking at ALK’s stock price, we believe that it has some room for growth. We estimate Alaska Air’s valuation to be $60 per share, about 14% above its current price of $52. Our forecast is based on a 10x P/E multiple for ALK and expected earnings of $6.21 on a per-share and adjusted basis for the full-year 2023. The company has guided for adjusted EPS to be in the range of $5.50 to $7.50 for the full-year 2023. The company expects its pre-tax margin to be between 14% and 17% for the year, implying margin expansion in the coming quarters. Alaska Air’s margin metric is partly being weighed down by the costs associated with the retirement of its Airbus fleet. Looking forward, the company is likely to have a better margin profile with lower costs associated with pilot training.

While Alaska Air’s stock looks like it has some room for growth, check out how Alaska Air Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

What if you’re looking for a portfolio that aims for long-term growth? Here’s a value portfolio that’s done much better than the market since 2016.

Returns Jul 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 ALK Return -2% 22% -41%
 S&P 500 Return 1% 17% 101%
 Trefis Multi-Strategy Portfolio 4% 24% 299%
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[1] Month-to-date and year-to-date as of 7/16/2023
[2] Cumulative total returns since the end of 2016

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