Alaska Air Group, Inc. (NYSE:ALK) released its financial results for the third quarter of 2023, revealing earnings per share (EPS) of $1.83. This figure fell short of the Zacks Consensus Estimate of $1.88, marking a 28% decrease in earnings compared to the previous year.
Operating revenues for the same period amounted to $2,839 million, missing the Zacks Consensus Estimate of $2,876.1 million. Although the top line saw a marginal 0.4% year-over-year increase, passenger revenues, contributing 92.2% to total revenue, experienced a slight uptick of 0.1% due to the ongoing recovery in air travel demand. The reported quarter’s passenger revenues reached $2,618 million, while cargo and other revenues dropped by 7% to $62 million. Mileage plan other revenues, on the other hand, showed growth, increasing by 9% to $159 million.
The important metric of total revenue per available seat mile decreased by 12% year over year, amounting to 15.28 cents. The yield also declined by 10% to 16.66 cents.
In response to increased air travel demand, consolidated traffic measured in revenue passenger miles surged by 11% to 15.71 billion. To accommodate this growth, capacity, measured in average seat miles, expanded by 14% to 18.58 billion. However, the consolidated load factor, indicating the percentage of seats filled by passengers, decreased by 1.9 percentage points to 84.6% during the third quarter of 2023.
Total operating expenses on a reported basis showed a 5% year-over-year decrease to $2,628 million during the third quarter. The economic fuel price per gallon dropped by 11% to $3.26. Consolidated operating costs per available seat mile, excluding fuel and special items, fell by 5% year over year to 9.57 cents.
Financial Position and Outlook
As of September 30, 2023, Alaska Air held $2,451 million in cash and marketable securities, slightly up from the $2,442 million at the end of June 2023.
The company exited the third quarter of 2023 with long-term debt (net of current portion) amounting to $2,128 million, compared to $1,889 million at the end of June 2023. The debt-to-capitalization ratio remained flat at 48% sequentially.
During the third quarter of 2023, Alaska Air generated $271 million in cash from operating activities and repurchased 248,988 shares for approximately $13 million.
Future Projections
For the fourth quarter of 2023, Alaska Air anticipates an 11-14% improvement in capacity compared to the previous year. Cost per available seat mile, excluding fuel and special items, is projected to decline by 3-5% year over year. Total revenues are expected to grow by 1-4% year over year, with an economic fuel cost per gallon in the $3.30-$3.40 range. The adjusted pre-tax margin is expected to be in the 0% to 2% range.
For the full year 2023, Alaska Air forecasts earnings per share between $4.25 and $4.75 (previous estimate: $5.50 to $7.50), with the Zacks Consensus Estimate of $5.29 exceeding the updated guidance. The adjusted pre-tax margin is projected to be between 7% and 8% (previous estimate: up 9-12%), and the full-year tax rate is still expected to be around 25%. In addition, capacity for the full year is expected to improve by 12-13% (previous estimate: up 11-13%), while cost per available seat mile, excluding fuel and special items, is now anticipated to decline by 1-2% (previous estimate: down 1-3%). Total revenues for the full year are expected to grow by 7-8% (previous estimate: up 8-10%). Capital expenditures for the year are now expected to be approximately $1.7 billion (previous estimate: around $1.8 billion).
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