Alaska Air Group (ALK) Q3 Earnings & Revenues Beat, Up Y/Y

Alaska Air Group, Inc. (NYSE:ALK) reported better-than-expected earnings and revenues in the third quarter of 2019. Following the release, shares of the company inched up 1.3% during after-hours trading on Oct 24.

The carrier’s third-quarteradjusted earnings per share (excluding 3 cents from non-recurring items) of $2.63 beat the Zacks Consensus Estimate of $2.62. Moreover, the bottom line surged 37.7% year over year on higher revenues and 77% drop in merger-related costs.

Revenues came in at $2,389 million, above the Zacks Consensus Estimate of $2,381 million. The top line also rose 8% year over year. Passenger revenues — contributing 92.5% to the top line — were up 8% on a year-over-year basis.

Operating Statistics

Airline traffic, measured in revenue passenger miles, rose 4.4% year over year in the reported quarter. Capacity or available seat miles expanded 3.4%. Load factor (percentage of seats occupied by passengers) improved 90 basis points to 85.8% as traffic growth outpaced capacity expansion in the quarter under review.

Total revenue per available seat mile (RASM: a key measure of unit revenues) increased 4.5% year over year to 13.64 cents in the quarter under discussion. Meanwhile, yield climbed 3.6% to 14.71 cents.

Operating Expenses & Income

In the quarter under review, total operating expenses were up 3% year over year to $1,967 million. Operating income surged 42% from the prior-year quarter’s level to $422 million. Fuel price (economic) was $2.13 per gallon, down 8.6% year over year. Consolidated cost per available seat mile — excluding fuel and special items — rose 3.4% to 8.43 cents.

Liquidity & Buybacks

At the end of the reported quarter, this Zacks Rank #2 (Buy) company had $1,619 million in cash and marketable securities compared with $1,236 million at the end of 2018. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Alaska Air exited the quarter with long-term debt of $1,444million compared with $1,617 million at the end of 2018. Adjusted debt-to-capitalization ratio was 42% compared with 47% in December 2018. The carrier repurchased 874,019 shares worth approximately $53 million in the first nine months of 2019.

Q4 Outlook

The company envisions capacity to rise approximately 3.8% year over year in the fourth quarter (compared with the previous expectation of 4% rise). Additionally, RASM is estimated to rise in the range of 1-4%. Non-fuel unit costs (excluding special items) are projected to inch up nearly 0.5% year over year (against the previous expectation of 1.2% decline). Meanwhile, economic fuel cost is projected to decline 8.1% year over year to $2.16 in the current quarter.

2019 Outlook

The company’s full-year forecast for capacity and non-fuel unit costs remains intact. While capacity is estimated to expand approximately 2.1%, non-fuel unit costs (excluding special items) are expected to rise nearly 2.2%.

Meanwhile, capital expenditures are now anticipated to be $700 million in the current year compared with prior projection of $725 million. Additionally, effective tax rate is predicted to be approximately 24%, lower than 26% anticipated previously.

Upcoming Releases

Investors interested in the broader Transportation sector are awaiting third-quarter 2019 earnings reports from key players like Expeditors International of Washington, Inc (NASDAQ:EXPD) , Air Lease Corporation (NYSE:AL) and Hertz Global Holdings, Inc (NYSE:HTZ) .

Hertz will release third-quarter earnings numbers on Nov 4. Expeditors and Air Lease will announce the same on Nov 5 and Nov 7, respectively.

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